The post What Business Owners Need to Know About Charitable Giving Tax Changes in 2026 appeared first on Walter Shuffain.

The post How Plan Sponsors Can Address Roth Catch-up Regulations appeared first on Walter Shuffain.

Estate planning has always been about looking ahead, but the landscape has shifted again. With the federal One Big Beautiful Bill Act (OBBBA) signed into law in 2025 and Massachusetts updating its own estate tax rules in 2023–2024, the rules for passing on wealth look very different from what they did just a few years ago.

For high-net-worth individuals and families, particularly those with estates ranging from $10 million to $20 million, these changes present new opportunities, but also raise new challenges. In Massachusetts, where the state exemption is far lower than the federal one, proactive planning is critical.

Key Takeaways

• The federal estate tax exemption will permanently increase to $15 million per person ($30 million for married couples) beginning in 2026.
• Massachusetts’ exemption remains much lower at $2 million per person ($4 million for couples).
• For many families, income tax efficiency, particularly strategies around the step-up in basis, now matters more than federal estate tax exposure.
• Estate plans should be reviewed regularly (every 1–2 years or after major life events) to reflect both federal and state realities.

What the Federal Exemption Increase Means

Starting in 2026, individuals will be able to pass on up to $15 million (or $30 million for married couples) without federal estate or gift tax. This permanently removes the “sunset” provision of the 2017 tax law, which would have cut exemptions in half.

Because so few estates will now be subject to federal estate tax, the focus has shifted to income tax planning. A central tool is the step-up in basis, which allows heirs to inherit assets at their current market value. This often means little to no capital gains tax if the heirs later sell those assets.

The higher exemption also creates opportunities for lifetime gifting. Families can transfer appreciating assets out of their estates while avoiding gift taxes, ensuring that future growth takes place outside the taxable estate. The federal top tax rate, however, remains at 40% on amounts above the exemption.

Why Massachusetts Residents Still Need to Plan

Massachusetts’s estate tax exemption increased from $1 million to $2 million in 2023, with a credit that eliminates tax below that amount and softens the blow just above it. But compared to the federal limit, Massachusetts still stands out as one of the most restrictive states.

A married couple can now leave $30 million tax-free federally, but only $4 million before Massachusetts estate taxes apply. For estates valued between $10 million and $20 million, that gap can mean millions of dollars in state taxes without proper planning.

It’s also important to note that real estate and tangible personal property located outside Massachusetts are generally not subject to the state’s estate tax, which can offer planning opportunities for families with multistate assets.

Real-World Examples

Example 1: A $10M Massachusetts Estate

Imagine a married couple with a $10 million estate. They might assume they’re safely under the new federal exemption and won’t owe estate taxes. However, in Massachusetts, roughly $6 million of their estate would still be subject to taxation. That could translate into a state estate tax bill of around $700,000 or more—a surprise no family wants.

Example 2: Gifting Land Early

Timing also matters. Suppose an investor buys land for $1 million and gifts 25% of it to heirs at that value. Only $250,000 of their lifetime exemption is used. If that land later appreciates to $25 million, the growth on the gifted portion happens outside their estate, saving millions in estate taxes. This strategy is especially powerful in real estate, where appreciation can be dramatic.

Smart Planning Strategies for Massachusetts Families

• Review and update your plan: Old wills and trusts often contain formulas tied to outdated federal exemptions. Left unchanged, they can create unintended results.
• Prioritize income tax efficiency: Holding highly appreciated assets until death can secure the step-up in basis and minimize future capital gains taxes for heirs.
• Gift strategically: Use the expanded federal exemption to transfer appreciating assets out of your estate, especially real estate, partnership interests, or early-stage investments.
• Plan for Massachusetts estate taxes: Techniques like irrevocable trusts, spousal lifetime access trusts (SLATs), and gifting programs (outside the three-year look-back) can reduce state exposure while preserving some family access.
• Review regularly: Estate planning isn’t “set it and forget it.” Revisit your plan every 1–2 years or when life changes—births, marriages, divorces, business sales, or major acquisitions—shift your circumstances.

Why Timing Still Matters

While the federal exemption is now permanent, delaying planning has costs. The longer assets appreciate inside your estate, the larger your taxable base becomes. Early planning not only locks in today’s value but also allows growth to occur outside your estate.

Final Thoughts

The OBBBA provides certainty at the federal level, but Massachusetts families must still navigate a very different reality. With a $2 million state exemption compared to a $15 million federal one, proactive estate planning remains essential.

By combining tax-smart strategies with careful timing and regular reviews, families can reduce both state and federal taxes, preserve flexibility, and make sure their wealth transfers to the next generation as intended.

FAQs

Q: What is the federal estate tax exemption starting in 2026?
A: $15 million per person, indexed for inflation. Married couples can combine exemptions for $30 million.

Q: Does Massachusetts follow the federal exemption?
A: No. Massachusetts has its own $2 million exemption, which is much lower than the federal limit.

Q: If my estate is under $30 million, am I safe from taxes?
A: Not necessarily. In Massachusetts, estates above $2 million are still taxable—even if they’re under the federal limit.

Q: How can I reduce Massachusetts estate taxes?
A: Tools like irrevocable trusts, spousal lifetime access trusts (SLATs), and well-timed gifting can help minimize state estate tax exposure.

Q: How often should I update my estate plan?
A: Every 1–2 years, or after major life changes like a business sale, inheritance, birth of a child, or divorce.

The post Estate Planning for 2025 and Beyond: What Massachusetts Families and Investors Need to Know appeared first on Walter Shuffain.

• Beginning in 2026, employees aged 50 or older who participate in a 401(k), 403(b), or 457(b) plan and earned more than $145,000 from their employer in the previous year must make their catch-up contributions on a Roth (after-tax) basis.
• Employers must update plan documents, payroll systems, and employee communications to stay compliant.
• All plan amendments must be adopted by December 31, 2026.

What Employers Need to Know About the 2026 Roth Catch-Up Change

The IRS has finalized regulations implementing the SECURE 2.0 Act’s catch-up contribution rules, effective in 2026. High-wage earners will be required to make their catch-up contributions on a Roth basis—meaning after-tax instead of pre-tax.

For employers, the change affects payroll processes, plan operations, and employee communication. Understanding the details now helps businesses prepare early and avoid compliance challenges.

What Are the New Catch-Up Contribution Rules Under SECURE 2.0?

Starting in 2026, employees aged 50 or older who earned more than $145,000 in the prior calendar year (2025 for 2026) from the employer sponsoring the plan must make their catch-up contributions as Roth contributions, taxed in the year they are made. The rule applies to 401(k), 403(b), and governmental 457(b) plans. Employees earning less than $145,000, or those not eligible for catch-up contributions, can still choose between pre-tax and Roth contributions.

The change simplifies plan administration while encouraging after-tax savings for higher earners. Employers should ensure their plans can accommodate Roth contributions, allowing affected employees to continue maximizing their retirement benefits.

Who Is Considered a High Wage Earner Under the New Regulations?

A high wage earner is any employee whose FICA wages from the sponsoring employer exceeded $145,000 in the prior year, with the amount adjusted annually for inflation. For employers that share a common paymaster, wages across related entities must be combined.

This definition enables payroll teams to identify affected employees easily and ensures compliance through accurate wage reporting.

When Do the New Rules Take Effect and Which Plans Are Affected?

The Roth catch-up requirement begins January 1, 2026. It applies to qualified retirement plans, including 401(k) plans, 403(b) plans, and governmental 457(b) plans. SIMPLE IRAs, SARSEPs, and specific 403(b) plans are excluded.

What Should Employers Do to Prepare for Compliance?

Employers should begin planning now. Begin by reviewing plan documents to determine if a Roth feature is available. If not, one must be added for high earners to continue making catch-up contributions.

Next, coordinate with payroll providers and plan custodians to ensure systems can identify high earners and apply Roth treatment correctly. Finally, adopt plan amendments by December 31, 2026. Without these updates, high earners will not be able to make catch-up contributions.

How Do These Changes Affect Payroll and Employee Communication?

Payroll systems must track employees’ prior-year FICA wages and automatically designate Roth treatment for those exceeding the threshold. This may require updates to payroll software and closer coordination with plan administrators to ensure seamless integration.

Employers should also clearly communicate these changes to ensure that high earners understand that catch-up contributions will be made after-tax, starting in 2026, which will impact both take-home pay and retirement savings strategies.

Are There Special Rules or Exceptions Employers Should Know?

Some exceptions apply. Collectively bargained employees may have different timelines. Employers should verify which exceptions apply to their plans.

Additionally, the SECURE 2.0 “super” catch-up provision for employees aged 60 to 63 remains available in 2026, but must also follow Roth rules for high-wage earners.

Why Early Planning Matters for Employers

Proactive planning ensures a smooth transition to the Roth-only requirement. Updating systems and documents early will minimize compliance risks and protect employee savings. Working with a CPA or retirement plan advisor helps confirm alignment with final IRS regulations and reduces last-minute stress.

Frequently Asked Questions (FAQ’s)

1. What changes does SECURE 2.0 make to catch-up contributions in 2026?
   In 2026, employees earning more than $145,000 in the previous year (2025 for 2026) must make all catch-up contributions as Roth (after-tax).
2. Who qualifies as a high wage earner under the new IRS rules?
   Any employee whose FICA wages exceeded $145,000 in the prior year, with adjustments for inflation, is considered a high wage earner.
3. How can employers prepare for Roth catch-up compliance?
   Employers should confirm Roth features, update payroll systems, and adopt plan amendments by December 31, 2026.
4. What is the deadline for updating retirement plan documents?
   All plan amendments must be adopted by December 31, 2026, to stay compliant with the new regulations.

The post Understanding the New IRS Regulations on SECURE 2.0 Catch-Up Contributions for 2026 appeared first on Walter Shuffain.

Transitioning Ownership

The decisions made regarding ownership of the family office or closely-held business may not necessarily be the same decisions that are required for leadership and management. It’s critical to understand and acknowledge the different elements that proper succession planning entails.

The family wealth enterprise has three interconnected circles of participation—the family members, the family’s business and the ownership of wealth—and each circle requires a succession plan. Those plans should reflect the family’s shared values and aspirations, and they should be implemented with business-like focus and diligence that is tailored to each family’s dynamics and relationships.

To successfully transition the family ownership, business and financial wealth to succeeding generations, leaders must be groomed and/or nurtured to assume the mantle of these responsibilities with competence. Moreover, to ensure that the family legacy remains intact and on course, each person assuming a new role must embrace the family’s common vision. Outlining deliberate plans to accomplish related goals across the family, business and ownership will help achieve an orderly, prosperous succession that protects the family legacy for generations to come.

What is Succession Planning and Why Is It So Important?

Robust governance practices form the cornerstone of success for the family wealth enterprise, and ongoing succession planning is one element of a mature governance system. As a family considers its future succession, it is vital to understand why a well-conceived plan is so important and what the critical elements of the plan entail. The succession plan prepares heirs to transition successfully and preserve, grow and pass wealth from generation to generation. Otherwise, the family wealth enterprise can diverge from the family’s values, philosophies and direction, which may erode family unity, endanger the legacy and dissipate financial wealth.

Effective governance protects the five forms of family wealth outlined below, and succession planning is a pivotal aspect of governance:

• Financial capital (money and assets)
• Human capital (the family members themselves and their skills and experience)
• Intellectual capital (knowledge, ideas and perspectives)
• Social capital (professional and social relationships, community involvement and philanthropy)
• Ethical capital (values, philosophies and responsible practices that improve the lives of others)

Imagine the succession plan as the roadmap that provides all necessary directions to reach the desired destination. It outlines specific roles and a timeline for training heirs to manage of all five forms of family wealth. Thoughtful succession planning also gives business stakeholders confidence about continued stability during times of transition and beyond, thereby increasing the family wealth enterprise’s resilience. Challenges will arise—including economic downturns and changes in the workforce and workplace—so it’s important to prepare for the unexpected.

The Elements of Succession Planning

The succession plan must specify ways to prepare heirs to be good stewards of wealth and enable them to understand their evolving roles and responsibilities. The ideal candidates will need to develop their financial literacy and business acumen, as well as leadership and decision-making skills.

Heirs can build financial literacy from a young age by managing their own expenses and then participating in the financial aspects of the family business. Understanding key financial concepts and practices provides a foundation to gain valuable workplace experience and develop business acumen. When heirs understand the finance function and the inner workings of a business, they can think strategically to identify risks and opportunities.

To develop their leadership capabilities, heirs must appreciate the importance of being accountable to others while holding others accountable as well—an especially delicate task when working with family members. Sound leadership requires emotional and social intelligence to communicate effectively, bearing in mind that some family members will receive and process information differently. Strong leadership skills are especially necessary within the business, and these will help heirs thrive in supervisory roles and gain buy-in from stakeholders.

To fill ownership and leadership roles, heirs need to develop their decision-making capabilities as well. They will have to weigh competing interests and make judicious decisions that yield the maximum benefits over the near term and long term. Drawing on leadership skills and business acumen enables heirs to make decisions more effectively. Ultimately, when identifying a successor, it is prudent to empower those who demonstrate a passion for the role and have the necessary skills to make a meaningful contribution.

“Before anything else, preparation is the key to success.” -Alexander Graham Bell

Succession Techniques

Succession planning should be rooted in an evaluation of the abilities and desires of those family members who are potentially in line for succession. Future family heirs will need education, training and business experience. Some heirs may not be interested in participating directly or may not have skills conducive to the family’s needs in this area. In some cases, extenuating circumstances (e.g., health issues, conflicting commitments, et al.) may also complicate having certain individuals directly involved in the succession plan.

Ultimately, some heirs may have active involvement while others have passive involvement—such as participating on the board but not engaging in day-to-day activities—so thorough planning and preparation are crucial.

Training and education for succession are key components of a sound plan and enable heirs to develop increasing levels of responsibility. These practices also limit overall risk to the family wealth enterprise by entrusting a specific set of duties to an heir, so they can demonstrate full competency before expanding the scope further. One way, for example, of enabling a family member to obtain this education is by completing an internship at the family business and then taking a position at another organization for a period of time prior to rejoining the family’s business in a permanent role.

An important aspect of family office governance is the family committee (also referred to as the family board or council), which comprises of core family members who review and execute key decisions. Within the family committee, heirs can serve as junior members who attend and observe before getting a voting role, so that they understand the process and responsibilities. It’s also helpful for heirs to have a service mentality in line with the family’s common philanthropic goals, and they can build this by participating in the family foundation, if one exists.

Younger family members can benefit from preparation for board positions as well, which includes receiving mentorship and formal board training. There are also benefits to outlining specific requirements for board participation. From a business standpoint, these steps could be comparable to the process for promoting an employee within the company, and heirs should be prepared to demonstrate a similar level of competence and accountability.

Critical Considerations for Ownership Transitions

Across all three circles of participation in the family wealth enterprise, there are four critical considerations to weigh carefully when transitioning ownership: communicating effectively, ensuring the proper fit, remaining flexible and establishing a new role for senior generations.

Overall, transparency regarding the plan and process helps to increase preparation and avoid conflict. Where necessary, communication can still be restricted on a need-to-know basis. From a timing perspective, different groups of stakeholders will need to be informed about relevant information depending on how aspects of the succession plan affect that group. These stakeholder groups may include family members, direct succession contenders and extend to key employees, crucial third-party professionals and the general public.  The communication strategy must account for the perceptions and reactions that could result. Effective communication and planning can minimize the potential for confusion or resentment. Especially within the family, soliciting input and acknowledging everyone’s viewpoints will help build consensus and prevent simmering discontent.

Ultimately, the most important factor is to select a successor who fits well in the role. While there is no definitive list of characteristics that describe an ideal successor, it’s best to have a combination of relevant experience, business acumen and emotional intelligence. These qualities help a successor address an array of challenges and build trust with key stakeholders.

The ideal leadership traits must be rooted in the family’s shared values, and they can include:

• Humility: Know what you don’t know and be willing to listen and learn.
• Accountability: Take responsibility for your decisions and hold others accountable.
• Maturity: Regardless of age, exercise good judgment and act in the best interests of the family and business.
• Integrity: Act in accordance with the family values, especially for difficult decisions.
• Diligence: Work hard, be engaged and lead by example.
• Cohesion: Be a good teammate, encourage collaboration and foster a shared culture.

As with any plan, flexibility is an important consideration. Remaining responsive to shifting circumstances or unexpected changes should be worked into the overall succession plan. For example, the person chosen as a successor may not be able to fill the role as expected for a range of reasons, such as an unforeseen change in personal obligations or health status. Scenario planning is an important aspect of preparing for a range of contingencies and responding accordingly.

Another critical aspect of planning is mapping out the new role for members of the older generation. They have significant knowledge to impart and are accustomed to holding influential positions, so a natural fit for them could be a board chair or head of the foundation, or both, if applicable. Correlated concerns include identifying any challenges and mitigating fear or resentment, which can come from internal conflict or frustration over a loss of control after decades of leadership. An outside facilitator who specializes in family dynamics can help identify and navigate these concerns in a constructive manner to ease the transition. It’s best to address such conflicts as soon as possible to avoid intervention after the transition.

Involuntary Succession: Preparing for the Unexpected

Unfortunately, some successions are not voluntary. Because there are many different considerations to weigh and significant planning required for a voluntary succession, the process can stall or hit a roadblock. This exposes the organization to greater risk, so it behooves all key stakeholders to make adequate preparations and guard against an involuntary succession, which could be caused by death, disability, the unanticipated sale of the business or other unexpected factors. Thorough preparation and scenario planning help alleviate the effects of an involuntary succession and maintain resilience during unforeseen occurrences.

The Path to Success

Succession will happen, so it’s important to plan accordingly— and well in advance—to achieve the desired outcome and maintain the family wealth enterprise. The plan should outline specific measures to educate heirs and have them gain experience with finances, leadership and decision making. Each type of succession across the family, business and ownership circles also needs to have its own distinct plan to ensure success, in combination with assessing the right fit for the role and communicating about this effectively.

Adaptability is a key aspect of succession planning, allowing the organization to adjust to unexpected occurrences without significant disruption. Ensuring members of the older generation have a new role to transition into, so that they can impart the value of their wisdom and experience can help to enable a smooth transition. Taking this proactive approach to succession planning positions the family, ownership and business for continued success, which will safeguard the family legacy for generations to come.

Succession Planning in 5 Steps

1. Determine how heirs will get education and experience with finances, leadership and decision making.
2. Assess and decide the best fit for the role.
3. Make a distinct succession plan for the family, business and ownership circles of participation.
4. Communicate the succession plan to all key stakeholders.
5. Establish a new role for members of the older generation.

The post How to Plan for Succession: Preserving, Protecting, and Passing on Wealth appeared first on Walter Shuffain.

Key planning insight: The deadline to take advantage of the 65-day rule for the 2024 tax year is March 6, 2025.

Understanding the 65-Day Rule

Unlike simple trusts, complex trusts are not required to distribute all their income annually. As a result, income retained within the trust is subject to trust income tax rates, which are notably compressed. For example, in 2024, trusts reach the highest federal income tax bracket of 37% at just $15,200 of taxable income, compared to $731,201 for married couples filing jointly. This compressed rate structure makes income shifting particularly advantageous.

The 65-day rule can reduce taxable income by allowing the trust to claim a distribution deduction for the previous year. Simultaneously, the distributed income becomes taxable to the beneficiaries, who may be in lower tax brackets, leading to potential tax savings.

Implementing the Election

To apply the 65-day rule, trustees must make a formal election by the trust’s tax return due date (including extensions) for the year in which the distributions are treated as having been made. This election is made on Form 1041 by checking the appropriate box or attaching a statement. Proper documentation for this election is crucial, and the distributions must be executed within the specified 65-day window.

Strategic Considerations

While the 65-day rule offers a valuable tax planning opportunity, trustees should carefully evaluate the following factors before making the election:

• Beneficiary Tax Brackets: Determine whether shifting income to beneficiaries will result in overall tax savings by assessing their tax brackets. For example, distributing income to a beneficiary in the 12% or 24% bracket may offer significant savings compared to trust-level taxation.
• Trust Objectives: Ensure that distributions align with the trust’s terms and the grantor’s intentions.
• Beneficiary Needs: Distributing income may have implications beyond tax considerations. Ensure you understand the financial needs and circumstances of beneficiaries.
• State Taxes: Some states do not follow the federal 65-day rule. Massachusetts does not follow this rule. This means that any distributions made within the first 65 days of 2025 that are treated as 2024 income for federal purposes will still be considered accumulated income for Massachusetts and taxed at the trust level.

However, non-Massachusetts source income for a vested nonresident beneficiary is not taxed at the trust level and can be deducted on the Massachusetts Fiduciary Income Tax return. Additionally, any distributions made within the first 65 days of 2025 will be treated as tax-free in 2024 for Massachusetts purposes.

Is this election right for your Trust?

The 65-day rule is a powerful tool for trustees to manage trusts’ and beneficiaries’ tax liabilities effectively. By carefully planning distributions within the 65-day window and making the appropriate election, trustees can optimize tax outcomes while aligning with the trust’s objectives and the beneficiaries’ best interests.

If you are considering this election, reach out to our team today. The deadline to take advantage of the 65-day rule for the 2024 tax year is March 6, 2025.

The post The 65-Day Rule: A Strategic Tax Planning Tool for Trusts appeared first on Walter Shuffain.

Managing a complex portfolio involves unique challenges and opportunities, especially when optimizing your financial strategies. While some aspects of your financial situation may be out of your control—like mortgage rates or state taxes—one area where you can take the reins is your charitable giving strategy. If you’re charitably inclined and looking to maximize your tax savings, donating appreciated securities could be the smart move you’ve been searching for.

The Basics: Understanding Your Deductions

The tax code offers two main avenues for charitable donations: cash contributions and donations of appreciated assets, such as stocks, art, or even a valuable book collection. Each has its own rules and benefits; understanding these can help you make informed decisions about your philanthropic efforts.

Cash Contributions:

Cash donations are straightforward, but they come with a cap. For the 2024 tax year, the maximum deduction for cash contributions is 60% of your Adjusted Gross Income (AGI). For example, if your AGI is $1 million, you can deduct up to $600,000 in cash donations. It’s a significant opportunity, but what if you don’t have that much cash on hand?

Appreciated Securities:

This is where appreciated securities come into play. If you’ve held onto certain stocks for 10 years or more, their value today might be significantly higher than when you first purchased them. By donating these appreciated assets, you get a double tax benefit: you can deduct the fair market value of the securities (up to 30% of your AGI for public charities) and avoid paying capital gains tax on the appreciation. For a high-net-worth individual, this strategy can be a game-changer.

Public vs. Private Charities: Know the Difference

Not all charities are created equal in the eyes of the IRS, and this distinction affects your deduction limits.

• Public Charities: These are organizations that receive funding from the general public, such as large national nonprofits. When donating to a public charity, your deduction limit for appreciated securities is 30% of your AGI.
• Private Charities: Typically funded by a small group of individuals, private foundations have a lower deduction limit—20% of your AGI for appreciated securities. While these organizations might align more with your personal philanthropic goals, it’s essential to factor in these limits when planning your donations.

The Flexibility of Donor-Advised Funds

One of the most versatile tools in charitable giving is the Donor-Advised Fund (DAF). Think of it as a holding account for your charitable contributions. You can donate appreciated securities to a DAF before the end of the year to secure your tax deduction and then take your time deciding which charities will ultimately receive your gifts. This approach provides flexibility, allowing you to be strategic about your giving while still benefiting from the tax savings in the current year.

Why This Strategy Matters Now

The standard deduction has increased significantly due to recent changes in tax laws, including the Tax Cuts and Jobs Act (TCA). For many taxpayers, this makes itemizing deductions less common, but itemizing could still be worth it for those with more significant charitable contributions.

Donating appreciated securities is a compelling strategy because it allows you to control the timing and amount of your deductions. Unlike other deductions—such as mortgage interest or state and local taxes, which are often fixed—you have direct control over your charitable giving. This allows you to maximize your tax savings while supporting causes you care about.

Ready to Start the Conversation?

If you have a complex portfolio with multiple income streams, now is the time to start planning. The earlier you begin the conversation with your CPA, the better. Donating appreciated securities is a nuanced strategy, and the right approach depends on your overall financial picture, including your AGI, the types of assets you hold, and your philanthropic goals.

We can help calculate the savings and determine your optimal donation amount. Whether you’re considering donating stock, cash, or a combination of both, we can work with you to discuss the scenarios and identify the best strategy for maximizing your charitable impact and tax benefits.

Don’t wait until the last minute—start the conversation today, and let’s work together to maximize your charitable contributions.

The post Maximizing Charitable Giving: The Power of Appreciated Securities appeared first on Walter Shuffain.

On October 4, 2023, Massachusetts Governor Maura Healy signed a landmark $1 billion tax reform package into law, marking the first tax cuts in the state in over two decades. Known as Massachusetts House Bill 4104, this legislation is designed to make the state more competitive and affordable for residents, particularly those with significant wealth. As someone with substantial assets, this new law, which is retroactive to estates of decedents dying after January 1, 2023, could have important implications for your estate planning.

Recently, the Massachusetts legislature delivered more good news to residents of the Commonwealth. On September 16, 2024, the legislature updated the 2023 Act to clarify the treatment of real estate and tangible property located outside Massachusetts in the estate of a Massachusetts resident decedent. The 2024 Act specifies that the value of such property is not subject to the estate tax of a Massachusetts resident decedent. Estates of decedents who died after January 1, 2023 – and filed a Massachusetts Estate Tax Return that included non-Massachusetts real estate or tangible personal property – may be entitled to a refund.

Key Changes in the New Tax Law

The tax reform package introduces several key changes to the Massachusetts estate tax, which could impact how you plan your estate. Here’s a breakdown of what you need to know:

1. Increased Estate Tax Exemption

One of the most significant changes is the increase in the estate tax exemption from $1 million to $2 million. This change is retroactive to January 1, 2023, meaning that estates of individuals who passed away this year can benefit from the higher exemption. Previously, Massachusetts had one of the lowest estate tax exemptions in the country, but this increase brings some relief, though it remains on the lower end compared to other states.

2. Elimination of the “Cliff Effect”

Under the old law, if your estate slightly exceeded the $1 million exemption, the entire value of your estate was subject to taxation. This scenario could result in a hefty tax bill even for relatively modest estates. The new law eliminates this “cliff effect,” ensuring that only the portion of your estate that exceeds $2 million is taxed. For example, if your estate is valued at $2.1 million, only the $100,000 above the exemption will be taxed rather than the entire estate.

Strategic Considerations for High-Net-Worth Individuals

Evaluating Property Ownership:
If you own or plan to acquire property outside the state, it might be beneficial to consider how to hold the out-of-state property. For instance, directly owned property located outside Massachusetts will not be subject to Massachusetts estate tax; however, real estate owned or titled in the name of an LLC could be considered intangible property and subject to estate tax in Massachusetts.

Estate Planning Opportunities:
While the increase in the estate tax exemption is helpful, it may not be sufficient for ultra-high-net-worth individuals. However, it does open the door to more strategic estate planning, particularly if you have assets spread across multiple states. This could be an opportune time to reassess your estate plan and explore ways to minimize your estate tax liability.

The Impact of Inflation:
It’s important to note that the $2 million exemption is not indexed for inflation. Over time, as inflation erodes the real value of this exemption, it may cover a smaller portion of your estate. Staying proactive with your estate planning can help mitigate the impact of this limitation.

Planning Opportunities

This new tax law substantially changes Massachusetts estate tax, but how much it benefits you depends on your individual situation.

If you own or are considering purchasing out-of-state property, now is an excellent time to review your estate plan and consider how this new law and the recent changes to it can work to your advantage.

If you hold a complex portfolio with assets in and out of Massachusetts, now is the time to start a conversation with your CPA or estate planning attorney. They can help you navigate the new law’s provisions and identify strategies to optimize your estate plan. Don’t wait—reaching out now will give you the best chance to take full advantage of these changes before year-end.

The post Adapting to Massachusetts’ Estate Tax Changes appeared first on Walter Shuffain.

Wealth preservation is a key concern for high- and ultra-high-net-worth individuals, especially when passing on assets to future generations. Estate planning is the cornerstone of ensuring that your wealth is transferred smoothly, efficiently, and according to your wishes. The right estate planning tools can safeguard your legacy, minimize tax liabilities, and provide peace of mind for you and your loved ones.

7 Essential Estate Planning Tools

1. Wills

A will is the foundation of any estate plan. It outlines how your assets will be distributed upon your death, names guardians for minor children, and designates an executor to manage the settlement of your estate. Without a will, state laws dictate the distribution of your assets, which may not align with your wishes.

2. Trusts

Trusts are legal entities that hold assets on behalf of beneficiaries. They allow for more complex distribution strategies than wills, including staggered distributions, provisions for minor beneficiaries, and protections against creditors. Trusts can be revocable, meaning they can be altered or dissolved during your lifetime, or irrevocable, meaning they cannot be changed once established. Trusts are also a common way to avoid probate, which can be both a time-consuming and expensive process. With the proper trust in place, you can easily avoid this headache for your beneficiaries.

3. Irrevocable Trusts

An irrevocable trust offers significant tax advantages and asset protection benefits. Once assets are transferred into an irrevocable trust, they are no longer considered part of your taxable estate. This can reduce estate taxes and protect your wealth from creditors. However, you relinquish control over these assets, so careful planning and consideration are essential.

4. Power of Attorney

A power of attorney is a legal document granting someone you trust to manage your financial affairs if you become incapacitated. This ensures that your finances are handled according to your wishes, without the need for court intervention.

5. Inheritance and Gift Tax Planning

High-net-worth individuals must consider the impact of inheritance and gift taxes on their estate. Proper planning, including the use of lifetime gifts, charitable donations, and trusts, can minimize the tax burden on your heirs and ensure more of your wealth is preserved. Here’s a link to a recent article we published on the tax implications to consider when inheriting or gifting real estate.

6. Healthcare Proxies

A healthcare proxy, or medical power of attorney, designates someone to make healthcare decisions on your behalf if you are unable to do so. This person is responsible for ensuring that your medical care aligns with your values and wishes.

7. Life Insurance

Life insurance is a crucial tool in estate planning, providing liquidity to cover estate taxes, debts, and other expenses. It can also be used to equalize inheritances among beneficiaries or fund trusts. Different types of life insurance are designed to suit various needs, and the right choice depends on your specific situation. Consider reading this blog post for more information, where we cover the most common scenarios and the types of life insurance that fit them best.

Why These Tools Are Essential

These estate planning tools are critical for maintaining control over your assets and ensuring your family’s future financial security. Without them, your estate could be subject to lengthy, costly, and public court proceedings that may not honor your intentions. Proper estate planning provides clarity, reduces stress for your loved ones, and protects your legacy.

These documents work together to ensure that your assets are managed and distributed according to your wishes, both during your lifetime and after your death. A well-crafted estate plan allows you to make decisions about your property, healthcare, and finances in advance, ensuring that your family is taken care of and that your legacy is preserved.

How We Can Help

Our team of fully vetted financial advisors and tax professionals work together seamlessly, providing a comprehensive approach to wealth preservation. We don’t just answer your tax questions; we partner with you to create a powerful, integrated estate plan that aligns with your financial goals.

Let us review your current estate plan or help you create the necessary documents to ensure that your wealth is protected and passed on according to your wishes. Learn more about our wealth management services and contact us today.

The post Estate Planning Essentials for Preserving Generational Wealth appeared first on Walter Shuffain.

Many individuals want to provide financial assistance to family members to help them experience the joys and pride of home ownership. From aiding grandchildren to purchase their first homes to empowering children or other loved ones to build their personal balance sheets through investing in residential real estate, there are many options to explore regarding how financial support is best provided. Each approach has tax implications, and determining the best approach will require consideration of a number of factors, including:

• Whether the residence is already owned by the family or is being newly acquired;
• The anticipated growth of the home’s value;
• The expected period of time that the family will own the home; and
• The availability of attractive bank financing terms.

This article explores some of the options that may be considered and identifies some of the tax implications that should be evaluated.

Navigating Estate and Gift Tax Exemptions

The estate and gift tax lifetime exemption is currently $13.61 million for individuals and $27.22 million for married couples, under the Tax Cuts and Jobs Act (TCJA), but it is set to be reduced to an estimated $7 million per person beginning January 1, 2026. If the value of your residential real estate is a significant component of your personal balance sheet, transferring those assets outside of your estate may be a prudent way to take advantage of the higher lifetime exemption before the TCJA estate tax provisions sunset.

The Generation-Skipping Transfer Tax

In addition to the estate and gift tax, the generation-skipping transfer (GST) tax often comes into play when wealth owners wish to transfer real estate, like vacation properties or second homes, to younger family members. GST tax is imposed on wealth transfers to grandchildren and more remote descendants that exceed the exemption limits so individuals cannot avoid transfer taxes by “skipping” a generation. The GST tax is levied in addition to gift or estate taxes and is not a substitute for them. The exemption for the GST tax is also $13.61 million per person and the exemption may be applied to gifts during lifetime or transfers through the grantor’s estate. The GST tax exemption is also scheduled to sunset at the end of 2025 and will be lowered to $7 million per person in 2026.

Gifting as a Means to Support Home Ownership

Many individuals consider offering a “deal” to their loved ones by pricing the residence at a level their family member can afford, below the current market rate. However, this situation can create a tax filing obligation because the IRS considers any transfer of assets for less than full and adequate consideration than would be paid “between a willing buyer and a willing seller” (Treas. Reg. §20.2031-1) to be a gift. A gift tax return must be filed to disclose the gift to the IRS, and it must include a qualified appraisal as of the transfer date if the delta between the transfer price and the market value of the gift is higher than the annual exclusion ($18,000 for 2024). When the total value of all gifts made throughout an individual’s life exceeds the lifetime exemption amount (again, currently set at $13.61 million per person), then a 40% gift tax will be assessed on the excess of the total over the lifetime exemption amount.

Rather than gifting an entire property, wealth owners can make a cash gift to a beneficiary to cover the down payment, the monthly mortgage, property tax, insurance payments, maintenance and repair costs, and more. As mentioned above, the Internal Revenue Code provides an annual gift exclusion that allows individuals to give up to $18,000 in 2024 to as many people as they’d like without incurring gift taxes. If the gift is solely in cash, does not exceed the annual exclusion amount, and there are no other gifts to report for the year, a gift tax return is not required.

Gifting Real Estate Through Trusts

Using trusts to gift real estate is a technique often used in estate planning, as many trusts include provisions that allow the trustee to make discretionary distributions to or on the beneficiary’s behalf for health, education, maintenance, and support. The ongoing costs of home ownership, such as real estate taxes, insurance, mortgage payments, and home repairs can fall within the maintenance and support standard, to assist beneficiary’s with home ownership expenses.

Some types of trusts can be structured to continue for several generations, allowing a wealth owner to provide for home ownership even for decedents who are not yet living at the time the trust is created, if desired. This is done by allocating the GST exemption to the trust. Some trusts qualify for the $18,000 annual gift exclusion too, if there is a single beneficiary and all the assets and income go to the beneficiary or their estate.

Using estate planning techniques like a qualified personal residence trust (QPRT) may allow individuals to transfer a residence to their children, and still allow that individual to live in the home.  In addition to reduced transfer taxes, any future appreciation in the residence after the QPRT is established is transferred to children without being subject to additional transfer tax. Learn more about QPRTs here.

Living Arrangements and Reduced Rent Options

If you already own the home you want to gift or transfer, you could consider allowing a family member to live there rent-free or at a reduced rent. An annual gift tax return may be required if the market value of the reduced rent is higher than the annual exclusion, but a key advantage of this approach is that if you intend to transfer the property to the beneficiary upon your passing, maintaining the asset within your estate ensures it will benefit from a step-up in basis. This is an attractive option for a home that has a very low basis and has appreciated significantly over many years of ownership.

Loan Options for Home Purchase Assistance

Another option you can consider is loaning your family member the money to purchase the home from you at fair market value. However, there are protocols that must be followed to avoid running afoul of IRS regulations. Such loans must be formally documented, and payments made according to the terms of the agreement. Interest rates on related-party loans must be set, at a minimum, at the interest rate provided by the IRS in monthly published Revenue Rulings (known as the Section 7520 rates), and other arm’s length terms must be observed.

Of course, the grantor could forgive part of the loan at any point during the loan term. If the loan forgiveness amount is $18,000 or less per year, then it should qualify for annual exclusion gifting and not reduce the grantor’s lifetime estate and gift exemption.

However, it’s important to avoid a predetermined arrangement for forgiving the loan annually under the annual exclusion, as the IRS might view this as a single gift made in the first year, resulting in an inadvertent reduction of the donor’s lifetime exemption.

Financing Strategies for Home Purchases

Many families have relationships with their banking partners that allow them to obtain favorable interest rates or terms. In addition, they may own other assets, such as brokerage accounts, that may be used as additional collateral to support a loan, although it would not be advantageous to sell those assets. Using such assets as collateral usually entails the addition of restrictions that prevent the disposition of the assets while being held for collateral without prior authorization from the financial institution. A parent or grandparent can serve as a personal guarantor on the loan between the beneficiary and the bank, but there may be a gift value to a personal guarantee, and consideration should be given as to whether this triggers a gift tax filing requirement.

Consulting with Advisors for Tailored Strategies

As you can see, there are many ways in which wealthy individuals may offer to help loved ones achieve home ownership or favorable living arrangements. Talking with your advisors will help determine which options accomplish your goals while utilizing tax-efficient strategies. We can address your inquiries and assist in crafting a personalized strategy that enables you to transfer your wealth not merely as a gift but with meaningful intent and purpose, aligning with your family’s home ownership goals and financial well-being.

Written  by Abbie M.B. Everist. Copyright © 2024 BDO USA, P.C. All rights reserved. www.bdo.com

The post The Joys of Home Ownership: Balancing Financial Support and Tax Consequences with Real Estate Wealth Transfer Strategies appeared first on Walter Shuffain.