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With the Massachusetts estate tax exemption at $2 million, more families are looking for smart ways to protect their wealth and reduce potential taxes. One tool we often recommend is a Massachusetts Standby Gifting Trust.
This type of trust gives families the ability to make strategic gifts that can lower or eliminate state estate taxes, while still protecting assets for future generations.
What Is a Massachusetts Standby Gifting Trust?
A Standby Gifting Trust is an irrevocable trust you set up during your lifetime, but it stays inactive until it is needed. The goal is to have the option available to make gifts later in life, even in situations where you might be incapacitated or close to death.
Let’s say your estate is worth $2.2 million. That amount exceeds the current Massachusetts estate tax exemption and would trigger a state estate tax. But if you had a way to make a $250,000 gift before passing, you could reduce your estate to $1.95 million and avoid the tax entirely.
Because the trust is already established, your family or trusted decision-makers could move quickly if the situation calls for it. That flexibility can mean thousands in tax savings.
Why Use a Trust Instead of Gifting Outright?
Some people wonder why they can’t just give the money directly to family members. Here’s why using a trust often makes more sense:
- Protection: Assets inside the trust are safeguarded from divorces, lawsuits, creditors, or personal issues like addiction.
- Purpose: You can ensure gifts are used for things like education, health care, or housing, especially for young beneficiaries or those not ready to manage an inheritance.
- Control: You set the terms of how the money is used and when it’s distributed.
With a standby gifting trust, you keep more control over the outcome while still reducing the size of your taxable estate.
Be Cautious with Appreciated Assets
Not all assets are ideal for gifting into the trust. If you gift low-basis, highly appreciated assets, your heirs could face a capital gains tax when they sell. That’s because gifted assets do not receive a step-up in basis at death.
This is why we look closely at your entire portfolio. Cash or high-basis assets might be better options for gifting. Appreciated assets might be better kept in your estate so they get a step-up in basis and avoid future capital gains.
Why Planning Ahead Matters
The truth is, you may never need to use the trust. But having it in place gives you options. If your estate grows or laws change, your family will still be able to make decisions that could save thousands in taxes.
At our firm, we include Massachusetts Standby Gifting Trusts as part of a larger estate planning strategy. It’s not just about documents. It’s about flexibility, protection, and helping your family make the smartest choices when the time comes.
Thinking Ahead? We’re Here to Help
If your estate is nearing or over the $2 million threshold, a standby gifting trust could be a valuable part of your plan. We can help you weigh your options, choose the right assets, and build a plan that gives your family peace of mind.
