Massachusetts Estate Planning 2026: The $2M Exemption, No Portability, and What Boston-Area Families Must Know

Massachusetts taxes estates above $2,000,000 — even though the federal threshold is $15,000,000. The exemption hasn't budged since the 2023 reform and isn't indexed for inflation. There's no portability: a married couple who fails to plan can lose one spouse's full $2M exemption permanently at the first death. And because Massachusetts has no state gift tax, annual gifting is one of the most tax-efficient tools available to residents. Understanding these rules — and the interaction with the 4% Millionaire Surtax — is essential for anyone with significant Massachusetts exposure.

How Massachusetts estate tax works in 2026

Massachusetts computes its estate tax using the state death tax credit table from IRC §2011 as it existed on December 31, 2000 — applied to the "adjusted taxable estate" (ATE), which equals the federal taxable estate minus $60,000. The computed credit amount is then reduced by a $99,600 credit introduced by H.4104.³

Because the $99,600 credit exceeds the tax on any estate with an ATE of roughly $1.94M (gross estate ≈ $2M), estates at or below the $2M filing threshold owe zero Massachusetts estate tax. For estates above $2M, only the incremental tax above the credit amount is owed — effectively taxing only the excess.

*ATE = federal taxable estate (gross estate minus allowable federal deductions) minus $60,000. The total tax from this table is then reduced by the $99,600 credit. Actual liability is computed on Form M-706. Source: G.L. c. 65C; IRC §2011 as of December 31, 2000; MA DOR.

What Massachusetts families actually owe — illustrative amounts

The table below shows approximate MA estate tax for common estate sizes, assuming the gross estate passes entirely through the taxable estate (no marital deduction, charitable deduction, or other federal offsets). Actual liability depends on the full M-706 computation.²

The portability problem — the biggest planning gap for married couples

Massachusetts does not allow portability. When the first spouse dies, any unused portion of their $2M exemption is permanently lost — it cannot be transferred to the surviving spouse. This makes asset titling and trust structure decisions far more consequential in Massachusetts than under the federal rules, where the surviving spouse can elect to use the deceased spouse's unused exemption (DSUE).

The cost of ignoring portability in Massachusetts

Consider a married couple with $6M in combined assets. Both spouses die over the next 20 years. Two scenarios:

For a $4M couple, the credit shelter trust eliminates MA estate tax entirely at both deaths — saving approximately $149,600. For every married couple above $2M in Massachusetts, failing to plan around the lack of portability is the most expensive estate planning mistake available.

The credit shelter trust (bypass trust)

A credit shelter trust — also called a bypass trust or "B" trust — is funded at the first spouse's death with assets up to the Massachusetts exemption amount ($2M). Because the trust is not in the surviving spouse's estate, those assets (and all subsequent appreciation) escape MA estate tax at the second death.

• The trust uses the first spouse's $2M exemption. Without a credit shelter trust, that $2M exemption is wasted when assets pass outright to the surviving spouse (the marital deduction defers the tax but loses the exemption).
• Growth inside the trust is also sheltered. $2M funded into a bypass trust today, growing to $3M over 15 years, keeps all $3M outside the surviving spouse's taxable estate.
• The surviving spouse can be a beneficiary. The surviving spouse can receive income from the trust and can access principal for health, education, maintenance, and support (HEMS standard). The restriction is that they cannot exercise general power of appointment over the assets.
• Asset titling is essential. A credit shelter trust in the documents is useless if all assets are titled jointly with right of survivorship — they'll pass automatically to the survivor outside the trust. Proper asset titling requires separating marital assets so each spouse has $2M in individually titled or beneficiary-designated assets to fund their trust.

Massachusetts estate tax vs. federal: key differences

Planning strategies for Massachusetts residents

1. Credit shelter trust — the foundation

As shown above, this is the single most important MA estate planning tool for married couples. Every couple above $2M in Massachusetts should have one in their estate plan. The trust documents alone aren't enough — assets must be titled and beneficiary designations structured so the first spouse's $2M can actually fund the trust at death. Review your beneficiary designations and account titling annually.

2. Annual gifting — permanently removes assets from MA estate

Massachusetts has no state gift tax. Gifts made after January 1, 2019 are not included in the MA gross estate — there's no lookback period.³ This makes annual gifting unusually powerful for Massachusetts residents:

• Annual exclusion: $19,000 per recipient in 2026 (indexed). A couple can give $38,000 per recipient per year — zero gift/estate tax consequence at either the federal or state level.
• 529 superfunding: $95,000 per recipient in 2026 (5-year election). Immediately removes $95,000–$190,000 per grandchild from the MA estate.
• Direct tuition and medical payments: Unlimited under IRC §2503(e). Paying a grandchild's private school, college, or medical bills directly to the institution uses no annual exclusion and no federal exemption.
• Systematic gifting at scale: A couple with four adult children can give $304,000/year ($38,000 × 4 children) plus unlimited tuition payments — all permanently outside the MA taxable estate after the calendar year of the gift.

3. Irrevocable trusts — move growth outside the MA estate

The same trust structures that work federally also eliminate MA estate tax:

• SLATs (Spousal Lifetime Access Trusts): One spouse transfers assets to an irrevocable trust for the other spouse's benefit, removing them from the grantor's MA taxable estate. The surviving spouse retains income access. A dual-SLAT strategy (one per spouse, drafted differently to avoid the reciprocal trust doctrine) can shelter $4M+ from MA estate tax for a married couple.
• GRATs (Grantor Retained Annuity Trusts): Transfer appreciation above the §7520 hurdle rate (5.00% in May 2026) out of the MA estate with minimal or zero gift tax cost. Particularly effective for business interests, concentrated stock, and real estate expected to appreciate rapidly.
• IDGTs (Intentionally Defective Grantor Trusts): Installment sale to an IDGT freezes the estate value at the note amount (AFR 4.08% mid-term, May 2026) while shifting all growth into the trust outside the MA taxable estate. Revenue Ruling 85-13 — no capital gains on the sale to a grantor trust — makes this a particularly clean structure.
• Dynasty trusts: Keep assets outside the MA taxable estate across multiple generations. South Dakota, Nevada, and Delaware allow perpetual trusts; Massachusetts courts recognize out-of-state dynasty trusts.

4. Charitable strategies

Charitable giving reduces the MA taxable estate under the same rules as the federal charitable deduction.

• Charitable Remainder Trusts (CRTs): Transfer appreciated assets to a CRT, bypass capital gains, receive an income stream and a charitable deduction, and remove the remainder from the MA estate.
• Donor-Advised Funds (DAFs): Contribute appreciated stock in a high-income year (e.g., year of business sale) to get the full FMV deduction, bypass LTCG, and permanently reduce the MA taxable estate. Note: the OBBBA (2025) imposed a 0.5% AGI floor on charitable deductions for high earners.
• QCDs from IRAs: Qualified Charitable Distributions of up to $111,000 in 2026 (from age 70½) reduce the IRA balance — which carries no step-up in basis at death — without triggering income tax or the 4% Millionaire Surtax.

5. Domicile change — the most aggressive option

Massachusetts residents who establish domicile in a state with no estate tax (Florida, Texas, Nevada, New Hampshire, etc.) before death remove their worldwide estate from Massachusetts estate tax — subject to one key exception: Massachusetts still taxes MA-situs real estate and tangible personal property located in Massachusetts, regardless of where the owner was domiciled at death.

Families considering relocation should:

• Sell or transfer MA real estate before the move, or accept that MA will tax those assets.
• Establish physical presence, voter registration, driver's license, and primary residence in the new state — Massachusetts aggressively audits domicile claims from high-income former residents.
• Change beneficiary designations, account situs, and trust situs to the new state.

The 4% Millionaire Surtax: interaction with estate planning

Massachusetts voters passed Proposition 1 in 2022, adding a 4% surtax on all Massachusetts taxable income above $1,000,000 effective January 1, 2023.⁴ The effective MA income tax rate is 9% (5% base rate + 4% surtax) on income above the $1M threshold. This creates significant planning complexity for families engaged in estate-planning transactions:

• Roth conversions: Converting a large traditional IRA to a Roth pushes taxable income above $1M, triggering the 4% surtax on the excess. A $2M Roth conversion generates $1M of additional MA income taxed at 9% = $90,000 in additional MA income tax beyond the base rate. Spreading large conversions across multiple years to stay under $1M is often worth the effort.
• Capital gains realization: Selling a business, concentrated stock position, or real estate may spike income above $1M in a single year. Installment sales (spreading gain over multiple years), IDGT installment sales, and charitable strategies can moderate the surtax hit.
• Trust distributions: Distributions from non-grantor trusts are included in the beneficiary's MA taxable income. Large discretionary distributions from a bypass trust or irrevocable trust in a single year may push a beneficiary over $1M and trigger the surtax. Spreading distributions across years — or making in-kind distributions — can reduce this.
• Grantor trust income: For grantor trusts (IDGTs, SLATs structured as grantor trusts), trust income is taxed to the grantor. If grantor income already exceeds $1M from other sources, all grantor trust income is effectively taxed at the 9% MA rate. This affects the cost-benefit analysis of large IDGT installment sales.

Case study: Boston biotech executive family, $8M estate

David and Sarah are in their late 50s. David is a biotech executive with $5M in vested RSUs and concentrated stock; Sarah has $1.5M in a retirement account and $1.5M in a brokerage. Combined: $8M.

Without planning — Massachusetts exposure:

• David dies first. His $6.5M passes to Sarah via beneficiary designation and marital deduction. $0 MA tax at first death — but David's $2M exemption is permanently lost.
• Sarah dies with $8M (estate grew). MA estate tax on $8M: ATE = $7.94M → approximately $660,000 in MA estate tax.
• Plus: no step-up in basis on IRAs, ordinary income tax on inherited retirement accounts.

With planning:

• Asset titling: Transfer $2M of brokerage assets into David's individual name (not joint).
• Credit shelter trust in David's will/revocable trust: At David's death, $2M funds the bypass trust. David's $2M MA exemption is fully used. Sarah is income beneficiary.
• Annual gifting: $38,000/year to their two adult children ($76,000/year combined, permanently outside MA estate with no lookback).
• SLAT for RSU management: David's unvested RSUs (as they vest) are gifted to a SLAT. Sarah is the beneficiary. $1M/year gifted over 3 years moves $3M out of David's estate before death.
• Result: Sarah's taxable estate at death: $8M - $2M (bypass trust) - $3M (SLAT) - annual gifts = roughly $3M. MA tax on $3M ≈ $59,200 — a reduction from $660,000.
• Federal tax: Below the $15M threshold even without planning; trust structures also reduce future appreciation in the taxable estate.

The planning savings of over $600,000 in Massachusetts estate tax alone — before accounting for federal capital gains planning or the inherited-IRA income tax trap — is typically worth the cost of the trust documents, asset retitling, and advisory fees many times over.

7 Massachusetts estate planning mistakes HNW families make

1. Joint titling everything. JTWROS accounts pass automatically to the survivor and bypass the decedent's trust — making credit shelter trust funding impossible without deliberate retitling before death.
2. Ignoring the non-inflation-indexed $2M threshold. An estate at $1.8M today may cross $2M in 5 years as assets appreciate — with no warning notice from Massachusetts.
3. Skipping the credit shelter trust because "federal exemption is $15M." Federal portability doesn't help with Massachusetts. The estate planning attorney who says "you don't need to worry about estate tax" may be thinking federally only.
4. Failing to retitle assets after the trust is drafted. A trust that isn't funded is a trust that doesn't work. The bypass trust only captures assets that are titled in the decedent's individual name (or payable to the trust via beneficiary designation).
5. Waiting too long to gift. MA gifts made after January 1, 2019 have no lookback — but assets that appreciating inside the estate continue to grow the MA tax liability. Every year of delay on annual gifting is another year of appreciation inside the taxable estate.
6. Triggering the Millionaire Surtax on Roth conversions without planning. Large conversions in a single year can generate $80,000–$100,000 in avoidable MA surtax. Spreading conversions or pairing with charitable deductions can reduce this significantly.
7. Not planning for MA-situs real estate during domicile change. Families who move to Florida thinking they've escaped MA estate tax still owe MA tax on their Massachusetts vacation property or rental building.