Knowing What Counts Podcast

Estate Planning in Massachusetts: Expert Strategies with Tim Lafalam

• Tim Provost, CPA • Episode 2

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What Are The Key Considerations And Strategies For Effective Estate Planning In Massachusetts?

Unravel the secrets of estate planning in Massachusetts with tax manager Tim Lafalam from MP CPAs, as he enlightens us on the intricacies of protecting assets and preserving legacies. Tim, who spearheads estate planning at MP CPAs, shares his journey from intern to tax manager and his passion for guiding clients through the ever-changing landscape of tax laws. Discover the critical strategies and considerations that are key to effective estate planning, especially following the notable changes in tax laws as of fall 2023. Tim emphasizes the importance of starting early with techniques like gifting, charitable, and trust planning to ensure long-term success.

Explore the complexities of the Massachusetts estate tax as Tim demystifies the $2 million threshold that mandates the M706 filing. With clarity, he addresses common misconceptions about taxable estates and provides insight into calculating a gross taxable estate. Tim also sheds light on assets often excluded from this calculation, such as those under partial ownership, with practical examples that make this complex topic more accessible. Whether you're just beginning to build your financial foundation or managing an established estate, this episode is packed with expert insights and practical advice to help you navigate the unique estate planning landscape in Massachusetts.

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Speaker 1:

Welcome to the Knowing what Counts podcast, the place where expert guidance meets smart financial decisions. Whether you're a high net worth individual or a thriving business, the experts at MPCPAs are here to help you protect and optimize your wealth. Let's get started, because success begins with knowing what counts.

Speaker 2:

Estate planning in Massachusetts requires careful navigation of state-specific laws and regulations. The team at MPCPAs unpacks the crucial factors to consider and strategies to ensure your assets are protected, beneficiaries are cared for and your legacy is preserved. Welcome back everyone. I'm Sophia Yvette, co-host slash producer, back in the studio with Tim LaFollum, tax manager at MPCPAs. So, tim, how's it going?

Speaker 3:

Hi Sophia, I'm great. I'm happy to be here. Hard to believe we're already in 2025, but here we are. I just got used to writing 2024 and we're already in 2025.

Speaker 2:

I know how the time flies and, tim, since our audience hasn't met you yet, go ahead and tell them a bit about yourself.

Speaker 3:

Yeah, sure. So I graduated from Western New England in 2016. For two years before that, I interned here at MPCPAs, so it was a pretty seamless transition in 2016, starting full-time here. And here we are, nine short years later from a full-time start. I kind of take the lead on most of the estate work here at MPCPA. I had an interest in it right away and I've loved it ever since. I've made my way up to manager. I'm excited for the future here.

Speaker 2:

So, tim, what are the key considerations and strategies for effective estate planning in Massachusetts?

Speaker 3:

You know there's a lot, especially given the way things have changed In the fall of 2023,. There were some significant changes which we'll talk about here in a little while.

Speaker 3:

I think just staying on pace with how the tax law changes, just like any kind of realm of tax law, to make sure that your estate planning strategy was still effective for whatever the current laws are, and just being aware of different strategies, whether it be gifting, charitable planning, trust planning, things of that nature. There's all kinds of things that people can do, and I'll add that you can start at a very young age. A lot of people will wait way too long to get an effective estate planning strategy in place, but a lot of these things that we'll talk about today are things that should start at a really young age, once you get into a financial comfort zone.

Speaker 2:

Most definitely, and so let's start with the basics. What should people know about Massachusetts estate tax?

Speaker 3:

So I think the first thing is this magic $2 million threshold. So for any individuals passing after January 1st of 2023 who have a gross taxable estate over $2 million, there is what's called an M706 filing requirement and that is what we'll call the estate tax return in Massachusetts. So as part of that doesn't necessarily mean there'll be a state tax due. That's sort of a common misconception and there's a lot of reasons why. But important part to know is that individuals passing away with a gross taxable estate of $2 million or more do have this M706 filing requirement $2 million or more, do have this M706 filing requirement.

Speaker 2:

And while every situation is unique, what are some basics people should know about the calculation of taxable estate?

Speaker 3:

Yeah, so, like you said, there's a lot that can go into it, Kind of as step one. What I like to explain is just picture somebody's net worth right. So all the assets that somebody owns whether that be investment accounts, brokerage accounts, cash in the bank accounts, cash under your mattress, say, jewelry or personal property, vehicles, things like that, retirement accounts, life insurance paid out when somebody passes All these things are sort of.

Speaker 2:

And are there any assets that are commonly excluded from the taxable gross estate?

Speaker 3:

Yeah, there certainly are. One of the most common is partial ownership. So let's say that there's a piece of real estate or really any assets, for the most part held, you know, 50-50 split joint ownership. Only the extent of the decedent's ownership is included in the gross taxable estate. So most common thing we see husband and wife probably own their residence together. So generally when the first spouse passes, only 50% of whatever that deemed date of death value is is includable in that gross taxable estate.

Speaker 3:

There's some other things a little more complicated but irrevocable life insurance trust. If those are effectively set up as they should be and own the insurance policy, then the proceeds paid out when the decedent passes are excluded from the taxable estate. Certain irrevocable trusts that are funded during a decedent's lifetime are also excluded. Everything from very simple things to very complex things. There are certainly assets that are excluded. One of the more common misconceptions is that post-tax retirement accounts like Roth IRAs are includable. They are not excluded. People will think, because the money's already been taxed, that there'll be no tax to ever pay again on them. That is true in part from an income tax perspective, not from an estate tax. Some things included, some things excluded, but hopefully that gives a pretty good idea of the inclusions and exclusions when you're thinking about a gross taxable estate.

Speaker 2:

What about if a Massachusetts resident passes away with property in a different state? What about if a Massachusetts resident passes?

Speaker 3:

away with property in a different state. Yeah, that's a great question and one that has changed here over the past two years about three or four times. So, prior to January 1st of 23, the idea was any out-of-state real estate or tangible personal property, but more commonly was real estate held in another state. So die a Massachusetts resident if you have a New York property, a Florida property. But more commonly was real estate held in another state, so die a Massachusetts resident If you have a New York property, a Florida property, a California property anywhere else.

Speaker 3:

Pre-1-1-23, that was excluded. And then, in the fall of 2023, they came out with these changes that were intended to be effective for deaths 1-1-23 and later and the initial reaction was that they were going to now bring those out of state real estate properties back into the taxable estate and I think that lasted I don't know three or four weeks and there was some significant pushback, which makes sense because people had planned for so long, given a certain you know it's estate planning. They plan for certain estate laws and then changing them and bringing those out-of-state properties back in really made no sense. So the DOR received some pretty stiff pushback and, as of right now, those assets are again just straight up, excluded from the gross taxable estate.

Speaker 2:

And to flip the script. Can a non-Massachusetts resident be subject to the M706 filing and have to pay Massachusetts estate tax?

Speaker 3:

Yep, certainly can. We see those quite often here. Basically how it works if it is, let's say, a Florida resident who has a property in Nantucket, cape Cod or anywhere else in Massachusetts, if their gross taxable estate is over that $2 million threshold and they have property in Massachusetts, if their gross taxable estate is over that $2 million threshold and they have property in Massachusetts, then they are basically treated for filing requirement purposes as if they're a Massachusetts resident, meaning there is a filing requirement Down the road once you get to the calculation of the estate tax. It's a little bit complicated and it's kind of prorated, but just know that the filing requirement is still in place.

Speaker 2:

Are there any deductions available that folks should be aware of?

Speaker 3:

Yeah, certainly are. One of the more common ones that we see in a typical estate plan is what's called the marital deduction. So, generally speaking, first spouse to pass passes almost all, if not all, of their assets to their surviving spouse, their surviving spouse in the estate receive what's called a marital deduction. It can reduce the estate receives a deduction for every dollar that passes to the surviving spouse.

Speaker 1:

So, effectively.

Speaker 3:

If all of the assets are passing to the surviving spouse, you could end up at the end of the day with a net zero taxable estate. That does not eliminate the requirement to file, so important to know the filing requirement and the calculation of estate tax are two separate concepts. There's some other things too, sophia Sorry to cut you off Charity for one so specific requests to charities that are written in a will or in a trust document, things like that. Those are deductions on the estate tax return as are other debts, mortgages, credit card debt, things like that.

Speaker 2:

I was just about to ask you anything else folks should know in this area of Massachusetts estate tax.

Speaker 3:

Yeah, I mean there's a lot. I mean we could talk about this for hours, if not days. I think one of the biggest things and one of the reasons that we get involved in a lot of instances is I get the question of why file? Who's going to catch me, especially if no tax is due? And I like to inform folks about this estate tax lien.

Speaker 3:

When somebody passes they own real estate, the Massachusetts DOR estate tax unit places what's called a silent lien on a piece of property. I call it silent because they're not going to knock on your door and place a lien on any property, but know that the lien is in place and down the road, if an executor, the kids, the family, the beneficiaries, whoever it may be, want to sell that piece of property, it can get held up on closing day or leading up to closing day because there is no clean deed recorded, because that lien is still in place. So the way it works is filing the 706. Once the DOR approves, you are issued a certificate releasing that lien. That certificate goes on record with the Registry of Deeds and all is well so that when closing day happens, everything shows as a clean title.

Speaker 2:

While the focus has been on Massachusetts. Are there federal filings or other state filings that folks should be aware of?

Speaker 3:

Yeah, there are a lot. Not every state has an estate tax like we've talked about today. I think it's roughly half of them. Massachusetts is certainly one of the lower thresholds at $2 million. I think New York's upwards of like six Connecticut even double that or something. Massachusetts certainly one of the lower thresholds Federally. Very similar concept, except that threshold is $13 million. So obviously the $2 million is a lot more attainable for folks. Those filing requirements are a lot more frequent. That federal equivalent of that threshold is again, it's north of $13 million adjusted for inflation every year.

Speaker 2:

Love it, Tim. Hopefully we will catch you on the next episode. Have a fantastic rest of your day.

Speaker 3:

Excellent. Thank you, Sophia.

Speaker 1:

Thanks for listening to the Knowing what Counts podcast. Ready to optimize your wealth and protect your future, visit TheMPGroupCPAcom or call 413-739-1800 to connect with our team of experts. Remember, success is about knowing what counts.