Credit Shelter Trusts For Massachusetts Residents
Dale Tamburro • March 7, 2025
Credit Shelter Trusts for Massachusetts Residence
Credit shelter trusts are a way to take full advantage of Massachusetts estate tax exemptions. Being a Massachusetts resident we have been very lucky in terms of the appreciation of our real estate and many of my clients don’t realize that they are “millionaires” just by starting to look at their “worth” from their real estate. Massachusetts Estate Tax Laws have two major differences from the Federal Estate Tax Laws.
- An Individual who passes away has a $2.0M Exemption before their estate/beneficiaries will owe an estate taxes. The FEDERAL lifetime gift/estate tax exemption is $13.99 million in 2025. The lifetime gift/estate tax exemption is projected to be $7 million in 2026.
- Massachusetts does not allow for “portability”. The Federal law does. Portability means that spouses may share in their individual exemption, essentially doubling it. So presently a married couple could exempt up to $28M if one of them died in 2025. To have portability requires that the surviving spouse, elects it by filing a Federal Estate Tax Return for the deceased spouse even though no tax may be due).
In Massachusetts the best way to replicate the benefit of portability is the use by both spouses of separate credit shelter trusts. The way to preserve both spouses' exemptions (so potentially $4.0M vs $2.0M) has been to create a "credit shelter trust" (also called an A/B or bypass trust). Simplistically if a couple is worth $3.0M or $4.0M when the first spouse dies and after the surviving spouse is worth $3.0M or $4.0M then when the second spouse dies (assuming the same net worth) the estate tax would be $99,600 for $3.0M and $182,500 for $4.0M. By using these credit shelter trusts, which are unique to married couples, they will use $4.0M in exemptions instead of only having the benefit of $2.0M when the second spouse passes.
Standard estate tax planning is to split an estate that is over the prevailing state or federal exemption amount between spouses and for each spouse to execute a trust to "shelter" the first exemption amount in the estate of the first spouse to pass away. While the terms of such trusts vary, they generally provide that the trust income will be paid to the surviving spouse and the trust principal will be available at the discretion of the trustee if needed by the surviving spouse. Since the surviving spouse does not control distributions of principal, the trust funds will not be included in her estate at their death and will not be subject to tax. This way, in Massachusetts the couple can protect up to $4 million from estate taxation while still making the entire estate available to the surviving spouse if needed.
The rising federal estate tax exemption means that many older trusts drawn up for married couples contain outdated estate-splitting provisions that may cost them dearly in state or federal taxes, or both. As recently as 2020, if you have retirement funds landing in a trust after your death, it is almost a guarantee the language in your trust will not be up to date unless it was amendment after January 1, 2020. Couples would do well to have their revocable trusts that contain credit shelter provisions reviewed by a competent professional.
If you're interested in learning more about CST, contact our office today!
1. Have the kids moved out of the house? One of the top reasons why so many people go big with their house purchases is to fit a growing family. But when the kids go away to school or move out of the house to start their lives, it can leave many bedrooms sitting available – rooms that have to be cleaned, spaces that wind up being heated and cooled with no one in it. If you no longer need a four or five-bedroom home, it may be prudent to downsize to something smaller and cheaper. In fact, you may find that a significant amount of money is going out the door to pay for your kid’s college degree and the home has become a financial burden. Money is often a motivating factor for knowing it is time to downsize your house. 2. Do you want to keep costs down? Expenses are a major reason people downsize their homes. Big houses are expensive to maintain, to insure and costs more in property taxes. Big houses also lead to higher utility bills. With a smaller home, you will save money on your monthly and yearly costs. If you are close to retirement or you are already retired, these savings can make your retirement funds go much, much further. If your house repairs are being done with short term rather than long term goals it might be time to move on. 3. Are you worn out from taking care of your property? Large houses require a lot of upkeep, as do big yards. Keeping a big home clean and in good working order is a lot of work. Mowing an expansive lawn takes a lot of time, and cutting the grass only gets harder as you get up there in years. Raking up the leaves in the fall is tedious even when you are young and fit. Keeping up with the leaves when you 5/8 are older is tiresome. You may pay for landscaping and cleaning services to take care of all these things, or you may just be resolved to working for hours each week on keeping up your property. Either way, you may be wondering if there is an easier option. A small home takes less effort to keep up, and a townhouse or condo is even less work because the exterior work is handled by the management company. You should get a complete understanding of which housing choice makes the most sense a home or a condo. Have to look at the advantages as well as disadvantages of homes vs. condominiums. If you travel a lot of just don’t have the time necessary to keep up with a home, a condo may be the best move. If on the other hand, you can’t stand the thought of losing control what goes on around you, a home may be the wisest choice. When downsizing these are subjects that should be thought through thoroughly. 4. Do you need to be in a different area? Your life is changing all the time, which means your priorities and the demands of your day will change too. Sometimes downsizing is necessary to accomplish a primary goal. You may have grandchildren you want to be close to, or another family member or loved one that you either want or need to be nearby. You may have obligations to a group or organization that are hard to meet in your current location. Or you might want to be closer to things you know you are going to need in the future, like healthcare. Selling your current home and moving into something smaller is usually the best way to get close to the things that are important to you. Your willingness to go with a smaller property gives you options. 5. Is the design of your home no longer conducive to your present needs? One of biggest problems as you age can be mobility. If your home is designed for multiple floor living It may be time to move, even if the monetary change is marginal, having the one floor living, or elevators can be critical. 6. Do you have a lot of equity in your home? If your house is paid off, or if you have a considerable amount of equity in your property, you may be able to sell your home, buy a smaller house in a cheaper area, and still have a sizable amount of cash left over. Depending on where your home is located, the market and how much the home as appreciated in value, you may find that your house is now worth far more than you imagined. You can find a smaller, less expensive home and add a lot to your retirement – or use the money for whatever you need it for. Let’s face it not having the burden of a mortgage feels good as well! Do, however, make sure you are up to speed on capital gains tax laws for real estate. This is one of the best home ownership perks from a financial standpoint, given the fact you can exclude up to $250,000 in profit if single and $500,000 if married. As great as the tax code is, if you live in a large, expensive home with tons of equity, you could have a good size tax bill. 7. Do you want a change of scenery? A big, lovely home can start to feel like an anchor. Sure, the home is impressive, but even the most impressive home can start to drag you down if you are ready to move on to a different area. You may want to live next to the ocean, or in the mountains, in a city or out of one. Many times people want something different, which is perfectly OK. Maybe hot desert air is calling to you, or you want to relax in a small, quiet town. Whatever location you are looking at, chances are if you sell your big home you will have the ability to settle there in a small, modest home. When folks get older in life, they may also find that instead of having one big home they would rather have two smaller properties. Sometimes people don’t want to leave the roots of their hometown, so they will and buy a smaller property in the same location. They will, however, also buy a second smaller place in an area they have vacationed in and simply love. Maybe downsizing sounds appealing to you for this exact reason. Other Options : What if you decide that downsizing your home is not the best move at present, but you need additional funds. Are there any options to get funds while remaining in my home and possibly downsizing later? There sure are! Look at the practical ways to get the equity out of your house. If you are 62 or older, a reverse mortgage is one of the best ways to remain in your house while also having access to your home’s equity. Tips For Downsizing Your Home Once you conclude that a smaller home is in your best interests, you’re going to need some of the best tips for downsizing your home! Here are some pointers for your consideration: Access your current needs – for example, do you need a formal living room in your next home? Look through your current home and look at everything you can get rid of! Do you have a hoarders’ mentality? This is something you need to change when downsizing. Think carefully about the design of what you want in your new smaller home. Measure your current furniture and see what will fit and what won’t in your new place. If you have oversized furniture, consider getting rid of it. Sell items you know you will not be taking with you. A garage or yard sale is one of the best exercises when moving to a smaller home. Figure out the storage area in your new home. Sometimes people overestimate going from a large to a smaller home in the area they will have. Understand the best ways to pack a home for a less stressful move.
FOR SINGLE OR MARRIED PEOPLE WITHOUT CHILDREN · Basic Understanding of Finances, Paying Bills, rearranging debt, attention to credit, start saving money, school loans · How to buy your first home; How to come up with the down payment · Under about 401K/IRA vs Roths; start small but start · When to buy life insurance and what kind · Explain the need for a Health Care Proxy and HIPAA authorization; Discount need of a Will unless married · How is the couple sharing financial responsibilities; individual accounts and joint accounts; buying a home with a non-50/50 contribution · Understand Home Care, Home/Car insurance; Homestead; How to take Title (default of Tenants in Common) FOR MARRIED COUPLES STARTING OR ALREADY STARTED A FAMILY · You need a Will because of the Guardianship Clause; Guardian of the Person vs Guardian of the Property. Perhaps time for your first Power of Attorney but definitely Will and Health Care Proxy · Life Insurance for Peace of Mind (enough money to get the kids through to adulthood); How much insurance; Term or Whole Life or Both · The Values of a Standby Trust for your children or a combination of your spouse and children · Financial Buckets; short term; long term longer term · Tax Planning; Investments beyond IRAs; should you diversion between pre-tax money and post-tax investments; Balance; Time for a financial advisors that emphasizes investment and growth in contrast to life insurance and such products · Pay attention to your parents; their estate planning; what are your expectations · 529 Plans or similar programs · What happens to your estate plan when you have more children? · Maintain your Estate Plan by periodic reviews with estate planner; If nothing changes, 5 years and as you get over shorter periods; · Review your Estate Plan when changes occur: o More children o Parent’s Disability or Death o Selling and Buying a new home or investment property; o Significant increase in Income or Net Worth o Eventually College planning for children o Look at your Fiduciaries; are they still appropriate · Is there a compelling need to coordinate Your Planning with Planning of your Parents or others who you anticipate will be leaving you something upon death. · Special Need Issues if you have a handicapped child · You may be needed to be a fiduciary for the Parents; What are your responsibilities, liabilities and personal ethics involved and family harmony · If your net worth goes up significantly, should you be looking at forming a trust or amending one you already have; do your wishes for your children change as they grow into their teens and are different; do you want to restrict your children’s access to funds until they are older? Divide it so they receive some at different ages; Who do you want as Trustee if you aren’t available? Are the people named in your will as Guardians still appropriate.
