Planning for Changes in Estate Taxes and Other Issues in 2024

On October 4, 2023, Massachusetts Governor Maura Healy signed a $1 billion tax reform package into law, including the first tax cuts in over 20 years for the Commonwealth of Massachusetts. Although lawmakers designed this reform package to be in effect retroactively through the start of 2023, many people are only now considering its impact as they develop plans for 2024. While there is no need to take rushed action, preparation remains vital to securing an optimized estate plan. The best strategies take time to implement.

In this newsletter, we review some of these changes to help determine if you could benefit from an adjustment in respect to your estate plan.

Estate Tax Thresholds Rise

Estate tax is a transfer tax that applies when someone passes away and leaves property to their loved ones. Unlike an inheritance tax, which is paid directly by the heirs and beneficiaries, the estate tax is paid by the estate before assets can be distributed to any beneficiary.

While there may exist concerns regarding the anticipated rise in the federal estate tax threshold in 2024, this increase is only an afterthought for most people in Massachusetts, given the fact that the state estate tax often impacts many more families throughout the Commonwealth. Notably, the federal estate tax only applies to estates valued at over $13.61 million in 2024, and although this could change upon the law’s expiration at the end of 2025, the tax threshold remains unlikely to drop below the Massachusetts estate tax threshold.

In Massachusetts, the threshold is now effectively set at $2 million –doubling from the preceding $1 million threshold in effect from January 1, 2006. Despite this prominent increase, many people may still need to continue with plans to reduce or avoid estate tax liability, particularly if they own a business. Increases in the annual gift tax exclusion amount can make a gifting strategy an attractive option. However, every situation is different, which is why we recommend speaking with an estate plan expert to see whether the change in the Massachusetts estate tax would make it advantageous for you to adjust some aspects of your estate plan.

Rising Interest Rates and Falling COLAs

Other changes ahead in 2024 include cost of living increases that are significantly lower than in previous years. Those receiving Social Security retirement or VA benefits are expected to receive a 3.2% increase in 2024, but inflation in comparison continues to track at a higher rate, which could impact gifting plans or the way you allocate distributions from trusts or other sources. At the same time, interest rates have risen tremendously in the past year after years of stagnation potentially making certain strategies you may not have considered in the past beneficial in light of these recent changes.

Schedule a Review of Your Estate Plan

If you have not revised your estate plan within the past year, you may not be prepared to take advantage of the best opportunities or have the protection you need to keep up with changes. As part of your planning for 2024, we recommend scheduling a consultation to review your estate plan and see if you could benefit from an adjustment.