On Jan. 16th I sat down with Mass. State Rep., Shawn Dooley, to talk about Massachusetts estate tax reform and his innovative bill. Dooley is the lead sponsor of a bill (H.2446) to raise the Mass. estate tax exemption from $1M to $2.75M and make several other modifications. Dooley is a former practicing Certified Financial Advisor® and Chartered Financial Consultant®, very knowledgeable on the subject, and clearly proud of his bill. He has garnered a lot of backers. I had never met Shawn, as he doesn’t represent my part of Medfield, but he is very likable and smart guy who was a pleasure to talk with.
Tim: Shawn, why should Mass. raise its estate tax threshold? Won’t it lose revenue?
Shawn: When someone changes their residence to Florida at age 65 it's probably not just for the warmth. It's probably that they're moving for a more stable, more tax-friendly state. A few years ago, Boston College did a study. What they determined was not only are we losing estate tax revenue [from the residents who move], we're losing their next 20 to 25 or 30 years of income tax and capital gains tax.
Tim: Florida famously has no income tax or estate tax. I see clients leaving the state all the time. What’s happening with Massachusetts’ population?
Shawn: We're actually losing. Whereas New Hampshire is gaining. I know this because I just had lunch with Governor Sununu two days ago. So we're talking about it, and because [some in the legislature here] are trying to pass the millionaire's tax and trying to implement this additional carbon tax and things like that, Sununu’s take is like, “bring it on, because this is great for NH!”
For my bill, the Mass. Society of CPAs said, until this or something like this gets passed, we are going to strongly recommend to 100% of our clients who are in a taxable situation to leave the state; 100%! Why not? You can drive a half hour, and be in a tax-free state, go to New Hampshire, you still keep your health care and Red Sox season tickets.
Tim: The very high net worth citizens of Massachusetts are always going to be motivated to flee to states that have no tax at all. But it's the people between $2 and $10 million you are trying to reach, right?
Shawn: In a perfect world I would get rid of estate taxes, but with the Massachusetts political climate with an 80% democratic legislature and a strong, strong progressive caucus, that's not going to happen.
So, let's take who is most affected by the tax and get rid of “the cliff” [where once you surpass $1M currently you are taxed back to practically $0], add the use of both spouse’s exemptions, exempt the primary residence, adjust for inflation, and update other provisions that have been neglected.
The middle class has no idea. They don't consider themselves wealthy. They don’t seek out a trusted estate attorney or a financial planner. They've got their family attorney who means well but gives them a simple will, who [tells them] “when you die everything passes through all this sophisticated tax baloney and everything goes your spouse without taxes. No big deal.” And then all of a sudden, when the second spouse dies… [they get hit with the tax].
What are there, 11 states now that have an estate tax? [There are 18 states that have estate or inheritance taxes]. And we're the most regressive of all. We're even worse than Oregon because we have the cliff. If we did what Rhode Island did [who raised their tax to a $1.5M threshold] but go even further, how good would that be?
I was originally approached - I'm a Republican - but I was originally approached by the Democratic leadership because they knew this was my area of expertise. They said, listen, can you build something that works?
Tim: So how did you come up with this idea of exempting the primary residence? This is very unique.
Shawn: It was just, how do we incentivize people to stay in Massachusetts? I looked around; no one else in the country had ever done this before. Let's try to be unique. Let's try to bump up the number with the residence. My first iteration was [a tax based on] 50% of the federal exemption. And then when the Fed jumped up so much. [It is now 11.58M.] I knew that couldn't happen, so that's where I came up with 2¾ million, which was basically 50% of the Fed rate - what it was before , and what it may be again in 2026.
How do we know what creates an incentive for people to want to stay here? I think that there's a lot of people, especially when you're born or raised here, your family is here - you want to stay. And most people don't mind paying their fair share.
Tim: If somebody has moved out of state, but they've left their $10 million Boston condo in an LLC, the condo is now exempt from estate tax. What effect would your proposal have on that break?
Shawn: It doesn't address that. I mean it basically treats them just as it is currently.
Tim: Maine has a law that says if it's a pass-through entity and you've transferred your real estate located in the state into an LLC or trust that's a pass-through to you while you're alive, and then you die, it's still going to be included in the Maine estate tax base even though you're not a resident.
Shawn: I didn't address it.
Tim: Who’s backing this bill of yours? What about realtors?
Shawn: All the business groups, realtors, bankers, and the bar are behind it.
Tim: If this passes, I don't think it's going to change my drafting much because we are always telling people, “You never know with inflation and growth what your estate is going to be or which bracket will incur tax.” And furthermore, there are so many other good reasons for trusts and planning that I'm not worried about an impact on our practice.” Thanks Shawn!
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