chevron-down Created with Sketch Beta.

RPTE eReport

Fall 2023/Winter 2024

Recent Massachusetts Tax and Estate Planning Developments

Elizabeth Lindsay-Ochoa and Jaclyn Gail Feffer


  • There has been the implementation of a new millionaire’s tax, a significant change to the existing Massachusetts estate tax law, and a case addressing the ability of the court to include a spendthrift trust as a marital asset in a divorce proceeding.
  • Under the law, the Massachusetts individual income tax rate for income over $1 million is increased (i) from 5% to 9% on wages, long-term capital gains, dividends, interest and other income and (ii) from 8.5% to 12.5% on short-term capital gains.
  • For planners seeking to advise their clients, one option to combat the impact of the tax is through a charitable deduction.
Recent Massachusetts Tax and Estate Planning Developments
Jason Kay via Getty Images

Jump to:

This past year has seen important legal developments for tax and estate planning in Massachusetts. There has been the implementation of a new millionaire’s tax, a significant change to the existing Massachusetts estate tax law, and a case addressing the ability of the court to include a spendthrift trust as a marital asset in a divorce proceeding. All of these developments meaningfully impact estate planners and their clients in Massachusetts but also may have broader ramifications.

Millionaire’s Tax

In 2022, the millionaire’s tax was voted into law, to be implemented as of January 1, 2023. This imposed an additional 4% annual income tax on Massachusetts tax filers whose reporting income is greater than $1 million in any given year. Under the law, the Massachusetts individual income tax rate for income over $1 million is increased (i) from 5% to 9% on wages, long-term capital gains, dividends, interest and other income and (ii) from 8.5% to 12.5% on short-term capital gains. To reduce income on the return, there was an option for married taxpayers to elect to file their income tax returns as married filing separately, regardless of how they filed at the federal level. In October 2023, Governor Healey of Massachusetts signed legislation (described in additional detail below) which now requires conformity in the filing status for the federal and state income tax returns, beginning with the 2024 tax year.

For planners seeking to advise their clients, one option to combat the impact of the tax is through a charitable deduction. Massachusetts will allow income tax charitable deductions starting with tax year 2023.

Estate Tax

Governor Healey signed legislation on October 3, 2023, which enacted amendments to Massachusetts estate tax law. The estate tax in Massachusetts is applicable to residents of the Commonwealth at the time of their passing, as well as non-residents who possess real estate or tangible personal property within Massachusetts.

Residents of Massachusetts

Prior to the recent legislative changes, Massachusetts maintained a $1 million exemption threshold. If an individual's estate amounted to less than $1 million, no estate tax liability would arise. However, for estates exceeding $1 million, the estate tax was assessed on the entire gross estate, a system often referred to as the "estate tax cliff." The new law increased the exemption amount to $2 million and is retroactive to January 1, 2023. Additionally, the exemption is now a true exemption, meaning the estate tax is now on gross estates above $2 million. Additionally, the law clarifies that out-of-state real estate and tangible personal property are not subject to the Massachusetts estate tax for its resident decedents.

For planners representing clients in Massachusetts, there are a few things to consider. First, if an estate has already filed a tax return for 2023, the estate may be entitled to a refund based on the new law. Second, for married clients, it is advisable to continue drafting trusts that leverage the state exemption amount. Massachusetts does not have portability on the state level.

Non-Residents of Massachusetts

Non-residents with estates exceeding $2 million and who own real or tangible property located in Massachusetts are subject to the estate tax. The issue for non-residents is that Massachusetts defines the taxable estate as all assets, wherever located (plus adjusted taxable gifts). This calculation uses a fractional approach, where the numerator of the fraction represents the value of real estate and tangible assets within the Commonwealth and the denominator is the total assets of the gross estate.

For those advising non-residents, a popular technique to avoid the estate tax is to move the real estate to a limited liability company (LLC), converting the asset from real property to intangible property and therefore falling outside of the estate tax regime. Nevertheless, planners should take caution as there is some uncertainty regarding whether the LLC would be legally recognized if it lacks a legitimate business purpose. Another consideration is if the LLC is structured as a single member LLC, it may be considered a property interest instead of an intangible under Massachusetts law due to its disregarded status, and thus would not fall outside of the estate tax regime.

Jones v. Jones

On September 6, 2023, the Appeals Court of Massachusetts decided the divorce case of Jones v. Jones, confronting the issue of whether gifts from the wife’s mother, including an irrevocable spendthrift trust, should be included in the marital assets for purposes of equitable division upon divorce. The Court concluded that the assets, including the spendthrift trust, should be included. Advisors should keep this case in mind as they advise clients who may one day be divorced in Massachusetts.


Husband and wife married in Michigan in August 1998, and were married for almost 19 years when the husband filed for divorce in Massachusetts in March 2017. The parties had two children (born in 1999 and 2001) and both spouses were employed outside of the home during the marriage and contributed equally to raising the children. During the marriage, the parties received a variety of financial gifts from wife’s mother which included, among other things: (i) a trust for the wife’s benefit (the Juliana Jones Irrevocable Trust, or “JJIT”), (ii) substantial funds that were deposited into a UBS CD ($300,000 which the parties had not added to or withdrawn from and which totaled $310,683.54 at time of trial), and (iii) a 99% interest in an LLC (PHR II) gifted to the wife that held title to the marital home and a one-third interest in real property in Michigan. The JJIT was formed as a GRAT remainder trust (to hold the proceeds of a 2015 GRAT established by wife’s mother) and funded with shares of Bank of Nova Scotia common stock.

In addition, the wife’s mother provided other gifts during the marriage enabling the parties to “fund frequent travel, summer camp and a lifestyle they would not otherwise been able to afford [without gifts from wife’s mother].” The parties contributed only minimally to retirement which the Court surmised was likely “due to [the] wife’s anticipated inheritance and the significant gifts the parties received during the marriage.”

Holding and Rationale

The Court held that the JJIT, the UBS CD account, and the LLC should all be considered part of the marital estate because the wife’s financial assets were “woven into the fabric of the marriage.” The Court felt it was equitable to include these assets due to the length of the marriage and the parties’ equal contribution during the marriage. The wife was able to retain the JJIT and PHR II, but was required to transfer to husband 60% of the UBS CD and make cash payments to him over a period of ten years (with the amount of such cash payments determined based on the value of the JJIT and PHR II as of the date of trial).

In determining that the JJIT should be included in the marital estate for purposes of equitable distribution, the Court determined that although the trust is discretionary, the wife had a “fixed and enforceable property right” in the trust, the wife was “entitled to the whole trust property”, and her share was not “susceptible to reduction.”

Given the Court’s conclusion regarding the JJIT being included in the marital estate, it is important for planners to understand the provisions of the trust, which included the following: (i) the trust was irrevocable, settled and funded by wife’s mother with the wife as the sole beneficiary, (ii) there was an independent trustee, (iii) the trust allowed for discretionary income and principal to wife for her best interests and welfare, (iv) the entire trust corpus was to be paid to wife after the mother’s death (terminating the JJIT), (v) the trustee had a power of postponement (allowing the trustee to postpone distributions for compelling reasons (which included the possibility of divorce and pending creditor claims, among other things), (vi) the trust was spendthrift, and (vii) the wife had a testamentary general power of appointment over the trust. It should be noted that the wife had never received a distribution from the trust.

The wife argued that because the trust was spendthrift and fully discretionary, her interest in the trust was merely speculative and, regardless, the trustee could always postpone a distribution to her because of the postponement provision. The Court disagreed and focused on the fact that upon the wife’s mother’s death, the entire corpus of the trust was to be mandatorily distributed to the wife, which gave her a vested and enforceable interest in the trust. The Court was unpersuaded by the argument that the trustee could postpone distributions to the wife because the wife still held a testamentary general power of appointment over the trust enabling her to control its disposition at her death. Importantly, the Court noted that the trustee had never actually postponed a distribution, and that the circumstances for a postponement might be temporary in nature or within the wife’s control, which limited the scope of the trustee’s power to postpone. The Court also stated that there was no evidence that the wife ever requested or would need to request a distribution in order to make any of the payments required to be made to the husband pursuant to the divorce judgment.

The Court distinguished this case from Pfannenstiehl (a prior Massachusetts case holding that a beneficiary’s interest in a discretionary trust was too speculative to be considered part of the marital estate) on the grounds that the trust in that case involved an open class of trust beneficiaries and no one beneficiary was entitled to any distribution.

Planning Tips

There are several lessons practitioners can glean from the Jones case. One key takeaway is that planners should be cautious about creating trusts with mandatory distribution provisions. A primary focus for the Court focus was the mandatory nature of the trust distribution at wife’s mother’s death – it was this mandatory distribution that created a vested enforceable interest in the trust. This vested interest could not be defeated by the postponement provision, especially because the wife held a general power of appointment.

Practitioners should also warn clients who would like to make gifts to his/her children and their spouses to enrich their lives about having those gifts be part of the “fabric of the marriage.” If clients would like to have the freedom to make gifts to their children, those clients should consider encouraging their children to sign a prenuptial or postnuptial agreement. This advice is important, even outside of Massachusetts because while trust beneficiaries may not live in Massachusetts today, they may live there at some point in the future.

Another focus for the Massachusetts courts seems to be on whether there is an open class of beneficiaries. The courts appear to be more willing to include the trust in the marital estate where the divorcing spouse is the sole beneficiary (as opposed to just one beneficiary among others as in Pfannenstiehl). Finally, planners should be cautioned about using ascertainable standards especially if maximum creditor protection is sought.

It remains to be seen whether the wife will appeal the Court’s decision, but in the meantime, planners must be mindful of the Jones case while planning for Massachusetts clients or those who may move to Massachusetts in the future.