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MASSACHUSETTS ESTATE AND PROBATE TAX TRAP AVOIDANCE

♠ Posted by Marc Soss in ,,,, at Monday, October 24, 2016
Since 2001, the Massachusetts Department of Revenue ("DOR") has taken the position that Massachusetts resident who die owning real estate or tangible personal property in states which do not impose a state estate tax (New Hampshire, Florida, etc...)the Massachusetts estate tax is applied to the total net value (including the assets in other states). In effect, if another jurisdiction charges an estate tax on real estate or tangible items located within its borders, Massachusetts allows a credit for the tax paid to the other jurisdiction. If no tax is charged, Massachusetts collected the tax attributable to that value as part of the total tax computed. However, a recent Massachusetts probate court held for the first time that a taxpayer who died with property in such a jurisdiction was able to exclude such property from their taxable estate, thus decreasing the tax significantly. While this decision was made by a state trial court, and not on the appellate level, the reasoning was based on solid U.S. Supreme Court precedent. The DOR does not seem likely to challenge the court’s reasoning. The U.S. Supreme Court previously ruled on this issue and found that such taxing schemes were in violation of the Due Process clause of the U.S. Constitution, because the person owning the land or tangibles in the other state derived no benefit from the laws of the state imposing the tax. Such benefits are held to be the basis of the state’s power to tax.