830 CMR: DEPARTMENT OF REVENUE
830 CMR 65C.00: MASSACHUSETTS ESTATE TAX
830 CMR 65C.00 is amended by adding the following section:
830 CMR 65C.2.1: Massachusetts Gross Estate

(1) Property included in a decedent's Massachusetts gross estate.

(a) General rule. The Massachusetts gross estate of a decedent is the federal gross estate as defined by sections 2031 through 2044 of the 1975 Code, reduced by the value of

1. Real estate and tangible personal property located outside of Massachusetts, and

2. Property subject to a general power of appointment on which inheritance taxes under M.G.L. c. 5, § 14 and St. 1975, c. 684, § 83 have been settled and paid.

(b) Modifications to the federal gross estate. The Massachusetts gross estate of a decedent is the federal gross estate as defined by the 1975 Code and 830 CMR 65C.2.1(1)(a), above, with the following exceptions:

1. Notwithstanding section 2035 of the Code, the Massachusetts gross estate of a decedent includes the value of property transferred by the decedent within three years of the date of death. For an explanation of Massachusetts rules concerning property transferred by a decedent within three years of death, see 830 CMR 65C.2.1(3);

2. Notwithstanding section 2040 of the Code, the Massachusetts gross estate of a decedent includes one-half of the value of all property owned by the decedent and spouse as joint tenants or as tenants by the entirety. For an explanation of property owned jointly by a decedent and spouse, see 830 CMR 65C.2.1(4); and

3. The Massachusetts gross estate of a decedent includes the value of QTIP property for which a Massachusetts marital deduction was allowed in the estate of the first spouse to die. For an explanation of QTIP property included in a decedent's Massachusetts gross estate, see 830 CMR 65C.2.1(5).

(c) Decedent's ownership of property. The Massachusetts gross estate of a decedent includes the value of all property, whether real or personal, tangible or intangible, in which the decedent had an interest at the date of death, except for real and tangible personal property outside of Massachusetts.

1. Sole ownership. If the decedent alone owned property, the full value is included in the decedent's Massachusetts gross estate;

2. Ownership in common. If the decedent owned property with another person or persons as tenants in common, the value of that portion of the property owned by the decedent is included in the decedent's Massachusetts gross estate;

3. Joint ownership. For an explanation of property owned by the decedent with another person or persons as joint tenants, or as tenants by the entirety, see 830 CMR 65C.2.1(4), below.

4. Ownership of encumbered property.

a. If the decedent's estate is liable for a mortgage or lien on any property, the decedent's Massachusetts gross estate includes the full value of the property and a deduction is allowed for the full amount of the mortgage or lien; and

b. If the decedent's estate is not liable for a mortgage or lien on any property, the decedent's Massachusetts gross estate includes only the value of the equity of redemption (which is the value of the property less the indebtedness), and a deduction is not allowed for the mortgage or lien.

(2) RESERVED

(3) Property transferred within three years of death.

(a) General rule. The Massachusetts gross estate of a decedent includes the total value of all property in which the decedent had an interest and made a transfer, relinquished a power, or exercised or released a general power of appointment, in trust or otherwise, within three years of the date of the decedent's death.

(b) Transfers by decedent to decedent and spouse. The Massachusetts gross estate of a decedent includes the total value of property transferred by a decedent to the decedent and spouse as joint tenants within three years of death. One-half is included as joint property owned by a decedent and spouse and one-half is included as a transfer by the decedent within three years of death. See 830 CMR 65C.2.1(4), below.

(c) Transfers within three years of death not included in decedent's Massachusetts gross estate.

1. Property with a value of $10,000 or less. where the decedent transferred property within three years of the decedent's date of death, and retained no interest that brings the transferred property back into the decedent's gross estate under any other section of the 1975 Code, the following rules apply:

a. If the total value of property transferred by the decedent to or for the benefit of any person during a calendar year is $10,000 or less at the date of transfer, that property is not included in the decedent's Massachusetts gross estate.

b. If the total value of property transferred by the decedent to or for the benefit of any person during a calendar year is greater than $10,000 at the date of transfer, the value of all property transferred to that person in that calendar year and within three years of death is included in the decedent's Massachusetts gross estate.

c. Property transferred by the decedent more than three years (thirty six months) before the decedent's death is not included in determining the $10,000 threshold for that calendar year.

2. Bona fide sale of property. Where the decedent Transferred property within three years of death in a bona fide sale for adequate and full consideration in money or money's worth, that property is not included in the decedent's Massachusetts gross estate.

3. Real or tangible property outside Massachusetts. Where the decedent transferred real or tangible personal property located outside of Massachusetts within three years of death, that property is not included in the decedent's Massachusetts gross estate and is not included in determining the $10,000 threshold for that calendar year.

(d) Valuation of property transferred within three years.

1. General rules. The decedent's Massachusetts gross estate includes the value of property transferred by the decedent within three years of death at the fair market value of the property on the decedent's date of death (or alternate valuation date), and not the value of that property on the date of transfer.

2. Property transferred for less than full consideration. Where the decedent transferred property with a value over $10,000 to any person during any calendar year and within three years of death for less than full and adequate consideration, that property is included in the decedent's Massachusetts gross estate at the fair market value of the property on the decedent's date of death (or alternate valuation date), less the amount of consideration received by the decedent at the date of transfer.

3. Exception to general rule. In determining whether property transferred by the decedent to any person during any calendar year within three years of death had a value of $10,000 or less, the property is valued at the date of transfer.

(4) Jointly owned properly.

(a) General rule. The Massachusetts gross estate of a decedent includes the full value of all property owned by a decedent and any other person or persons as joint tenants, unless the surviving joint tenant or tenants provide evidence of contribution, gift, or inheritance.

1. Joint property acquired by purchase. If property acquired by purchase is owned by the decedent with another person or persons as joint tenants, the full value of that property is included in the decedent's Massachusetts gross estate. However, if the surviving joint tenant or tenants furnished all or part of the contribution to that property and never acquired all or part of that property from the decedent for less than full and adequate consideration, only that portion of the property attributable to the decedent's contribution is included in the decedent's Massachusetts gross estate. The executor must submit facts by affidavit and other supporting evidence to substantiate the contribution.

2. Joint property acquired by gift or inheritance. if property acquired by gift or inheritance is owned by the decedent with another person or persons as joint tenants, only the decedent's fractional share of that property is included in the decedent's Massachusetts gross estate. The executor must submit facts by affidavit and other supporting evidence to substantiate the gift or inheritance.

(b) Simultaneous deaths. If property is held jointly by two decedents who die simultaneously, the property is distributed one-half as if one had survived and one-half as if the other had survived. Therefore, one-half of the value of the property held jointly is included in the Massachusetts gross estate of each decedent. If more than two joint tenants died simultaneously, the property is divided into as many equal shares as there were joint tenants. See M.G.L. c. 190A, § 3.

(c) Special rule for property owned only by a decedent and spouse as joint tenants. If property is owned by the decedent and spouse as joint tenants or as tenants by the entirety and they are the only joint tenants, only one-half of the date of death value of that property is included in the decedent's Massachusetts gross estate. This rule applies to all property held jointly by the decedent and spouse, and includes but is not limited to real estate, bank accounts, and other property interests. However, where a decedent transferred property to the decedent and decedent's spouse as joint tenants within three years of death, the total value of that property is included in the decedent's Massachusetts gross estate, one-half as joint property owned by the decedent and spouse and one-half as a transfer by the decedent within three years of death. See 830 CMR 65C.2.1(3), above.

(5) Qualified terminable interest property (QTIP).

(a) General rule. The Massachusetts gross estate of a decedent includes the value of qualified terminable interest property (QTIP) in which the decedent had a qualifying income interest for life, less the value of real and tangible personal property located outside Massachusetts, when the following conditions are met:

1. A Massachusetts marital deduction was previously allowed for that QTIP property in the estate of the first spouse to die, and

2. That QTIP property was held by the surviving spouse at death, or any interest in that QTIP property was transferred by the surviving spouse during life, by trust or otherwise, in a transfer which brings the property into the Massachusetts gross estate of the second spouse to die.

(b) Right of recovery. Where an executor of a decedent's estate has the right to recover federal or Massachusetts estate taxes from QTIP property not otherwise included in the decedent's Massachusetts gross estate, the decedent's Massachusetts gross estate does not include that QTIP property, except to the extent that the executor exercised the right of recovery.

(c) Valuation. The value of QTIP property is included in the Massachusetts gross estate of the second spouse to die at its fair market value at the date of death or alternate valuation date, if elected, of the second spouse to die.

(6) Other property included in Massachusetts gross estate. Examples of other property in a decedent's Massachusetts gross estate include but are not limited to the following:

(a) Property transferred with retained interests. If the decedent transferred property before death but retained an interest in the property which includes the property in the decedent's federal gross estate, the value of the retained property interest generally is included in the decedent's Massachusetts gross estate. Examples are property transferred with a retained life interest (section 2036 of the Code); property transferred with a retained reversionary interest (section 2037 of the code); and property transferred with a retained power to amend, revoke, or terminate the transfer (section 2038 of the Code).

(b) Annuities, pensions, or other payments. If the decedent had an interest in an annuity, pension, or other payment which continues to another person or to the decedent's estate after the decedent's death, the total value of the annuity is included in the decedent's Massachusetts gross estate (section 2039 of the Code). However, if the annuity is a qualified plan which meets the requirements of section 2039(c) of the 1975 Code, only the value of payments attributable to the decedent's contribution is included in the decedent's Massachusetts gross estate. In general, the total value of a decedent's individual Retirement Account (IRA), Keogh, or HR-10 Plan is included in the decedent's Massachusetts gross estate.

(c) Property subject to a general power of appointment. if the decedent had a general power of appointment over property, whether exercised or not, the value of the property subject to a general power of appointment is included in the decedent's Massachusetts gross estate (section 2041 of the Code). However, if Massachusetts inheritance taxes have been settled and paid on property subject to a general power of appointment, see 830 CMR 65C.2.1(1)(a) above.

(d) Life insurance proceeds. If the decedent held any incidents of ownership in a life insurance policy on the decedent's life or if the proceeds are payable to or for the benefit of the decedent's estate, the total value of the life insurance proceeds is included in the decedent's Massachusetts gross estate (section 2042 of the Code). If the decedent owned a life insurance policy on the life of another person, the cash surrender value of the policy at the decedent's date of death is included in the decedent's Massachusetts gross estate (Treas. Reg. § 20.2031-8(a)).

(7) Valuation of property.

(a) General rule. The value of all property included in a decedent's Massachusetts gross estate is its fair market value at the date of the decedent's death, unless the executor elects alternate valuation (see 830 CMR 65C.2.1(7)(b)) or special use valuation (see 830 CMR 65C.2.1(7)(c)).

(b) Alternate valuation (section 2032 of the 1985 Code).

1. General rule. For Massachusetts estate tax purposes, when alternate valuation is elected, all property included in a decedent's Massachusetts gross estate is valued at the alternate valuation date, which is six months after the date of the decedent's death, except in the following circumstances:

a. If any property is sold or disposed of within six months of a decedent's death, that property is valued at the date of sale or disposition; and

b. If any property interest is affected by a mere lapse of time, that property interest is valued at the date of the decedent's death. Mere lapse of time occurs where time itself, rather than market conditions, causes a change in the value of property. Examples of property interests affected by a mere lapse of time are annuities, term of years, life estates, and patents. For a further explanation of mere lapse of time, see Treas. Reg. § 20.2032-1(f) (1975).

2. Relationship between Massachusetts election of alternate valuation and federal estate tax payment. The following rules describe the relationship between the Massachusetts election of alternate valuation and the payment of federal estate tax:

a. If a federal estate tax is required to be paid, the Massachusetts election of alternate valuation must be consistent with the federal election; and

b. If a federal estate tax is not required to be paid, an executor may elect alternate valuation on the Massachusetts estate tax return, whether or not alternate valuation is elected on the federal return, and whether or not a federal return is required to be filed.

3. Massachusetts rules for election of alternate valuation. An executor must make the Massachusetts election of alternate valuation on the Massachusetts Estate Tax Return (Form M-706). The following rules govern the election of alternate valuation.

a. The election must decrease both the value of the Massachusetts gross estate and the amount of the Massachusetts estate tax liability of the estate;

b. The election must be made within one year after the due date of the Massachusetts estate tax return or one year after the expiration of a valid extension to file the return, and must be made on the first return filed;

c. The election must apply to all property included in the decedent's Massachusetts gross estate and cannot apply only to a portion of the property; and

d. The election once made is irrevocable.

(c) Special use valuation of farm property (section 2032A of the 1985 Code).

1. General rule. For Massachusetts estate tax purposes, an executor may elect special use valuation for qualified real property used for farming purposes in the following circumstances:

a. Massachusetts special use valuation. An executor may elect special use valuation for qualified real property which is used for farming purposes and which is included in a decedent's Massachusetts gross estate. When the estate meets all of the qualifications for special use valuation and the executor makes a proper election, the special use value of qualified, real property is based on its actual use as a farm.

b. Relationship between Massachusetts election of special use valuation and federal filing. The following rules describe the relationship between the Massachusetts election of special use valuation and federal estate tax filing requirements:

i. If a federal estate tax return is required to be filed, the Massachusetts election of special use valuation for qualified real property used for farming purposes must be consistent with the federal election made for federal estate tax purposes; and

ii. If a federal return is not required to be filed, the executor of an estate may elect special use valuation for qualified real property used for farming purposes on the Massachusetts estate tax return.

2. Qualified real property. Real property located in Massachusetts and used for farming purposes qualifies for special use valuation if all of the following conditions are met:

a. The decedent at the date of death owned real property located in Massachusetts, which is a "farm" (as defined in section 2032A(e)(4) of the 1985 Code), and is used for "farming purposes" (as defined in section 2032A(e)(5) of the 1985 Code);

b. The real property at the date of death passed from the decedent to the decedent's "qualified heir" (as defined in section 2032A(e)(1) of the 1985 Code);

c. The decedent or a "member of the decedent's family" (as defined in section 2032A(e)(2) of the 1985 Code) owned and used the real property for farming purposes during five of the eight years preceding the decedent's death;

d. There was "material participation" (as defined in section 2032A(e)(6) of the 1985 Code and Treas. Reg. § 20.2032A-3 (1985)) by the decedent or a member of the decedent's family in the operation of the farm during five of the eight years preceding the decedent's death;

e. At least 50 percent of the "adjusted value of the decedent's (Massachusetts) gross estate" (as defined in M.G.L. c. 65C, § 5(c) and section 2032A(b)(3)(A) of the 1985 Code) consists of the adjusted value of real or personal property used for farming purposes" (as defined in section 2032A(b)(3)(B) of the 1985 Code); and

f. At least 25 percent of the "adjusted value of the decedent's (Massachusetts) gross defined in M.G.L. c. 65C, § 5(c) 2032A(b)(3)(A) of the 1985 Code) "adjusted value of real property purposes" (as defined in section the 1985 Code). For purposes of 25 percent tests, the adjusted value of property used for farming purposes is determined without regard to special use valuation. See 830 CMR 65C.2.1(7)(c)3 below.

3. Valuation of qualified real property.

a. Special use value. As determined by the valuation methods of section 2032A(e)(7) or (8) of the 1985 Code and Treas. Reg. § 20-2032A-4 (1985), the special use value of qualified real property is based on its actual use as a farm, using all relevant factors.

b. Fair market value. As determined by Treas. Reg. § 20.2032A-8(a)(3) (1985), the fair market value of qualified real property is based on written appraisals of its highest and best use.

c. Adjusted value. As determined by section 2032A(b)(3)(B) of the 1985 Code, the adjusted value of qualified real property is based on its fair market value, reduced by any mortgage or lien thereon, without regard to special use valuation.

4. Recapture of additional estate tax. Under 2032A(c) of the 1985 Code, where special use valuation of qualified real property is elected for Massachusetts tax purposes, later events may disqualify the tax benefits from that election and give rise to an additional estate tax. The following rules describe the application of this additional tax:

a. Disposition of property or cessation of farm use. If within ten years after a decedent's death and during a qualified heir's lifetime, qualified real property is disposed of to a non-family member or ceases to be used for farming purposes, an additional tax is imposed to recapture the estate tax benefit from the special use valuation election. The maximum additional tax is the amount of estate tax benefit resulting from the election.

b. Special two-year grace period. If a qualified heir begins the qualified use of specially valued property within two years of a decedent's death, the recapture period of ten years begins when the special use of the property begins. See section 2032A(c)(7) of the 1985 Code.

c. Special lien on qualified real property. A special Massachusetts lien is imposed on all qualified real property for which an election of special use valuation has been made. This lien arises when the election is made and attaches to all qualified real property. If qualified real property is replaced or exchanged, the election of special use valuation still applies and the lien then attaches to the qualified replacement or exchange property.

d. Personal liability for additional estate tax.

i. Each qualified heir is personally liable for the portion of additional estate tax in proportion to each heir's interest in the specially valued property.

ii. within six months after the disposition of qualified real property or the cessation of farm use if within ten years after a decedent's death and during a qualified heir's lifetime, the qualified heirs are responsible for filing with the Commissioner an amended Massachusetts Estate Tax Return (Form M-706) and paying any additional estate tax in proportion to each heir's personal liability for the recaptured tax.

5. Massachusetts rules for election of special use valuation. Under M.G.L. c. 65C, § 5(c), 1985 Code §§ 2032A(a) and (d), and Treas. Reg. § 20.2032A-8 (1985), in order to make a valid Massachusetts election of special use valuation for qualified real property, the executor must comply with the following rules:

a. The election of special use valuation must be made on a completed Massachusetts Estate Tax Return (Form M-706), and, in addition, all other required documents must be filed. See 830 CMR 65C.2.1(7)(c)6, below. An election may be made on a late return, but only if it is the first return filed. A protective election may be filed with Form M-706. See 830 CMR 65C.2.1(7)(c)7, below;

b. The election may be made for all of the qualified real property included in a decedent's Massachusetts gross estate, but the total difference between the special use value and the fair market value of qualified real property cannot exceed $750,000. See section 2032A(a)(2) of the Code;

c. The election may be made for only a portion of the qualified real property, but the "adjusted value of the qualified real property" must be at least 25 percent of the "adjusted value of the decedent's Massachusetts gross estate." See 830 CMR 65C.2.1(7)(c)2f;

d. The election of special use valuation is an independent election. It may be made whether or not an election of alternate valuation is made. If the executor elects both for alternate valuation and special use valuation, the alternate valuation date must be used in valuing the qualified real property. See 830 CMR 65C.2.1(7)(b), above; and

e. The election once made is irrevocable.

6. Massachusetts filing requirements for election of special use valuation. An executor must make the election of special use valuation on a completed Massachusetts Estate Tax Return (Form M-706), by checking the appropriate box and including a description of the specially valued farm property on the appropriate schedule. In addition, the executor must file the following documents:

a. Form M-706N. The executor must file with the estate tax return a Special Use Valuation Election (Form M-706N), which contains instructions for the election of special use valuation and requires the following information:

i. The name, address, social security number, and relationship to the decedent of every party who received an interest in the specially valued farm property; and

ii. The fair market value and special use value of each party's interest in the specially valued farm property.

b. Agreement. The executor must file with the return an Agreement to Special Valuation (attached to Form M-706N), which requires the following information:

i. All of the decedent's qualified heirs and all other parties who have an interest in the qualified real property must sign the Agreement to Special Valuation, whether or not they are in actual possession of the property;

ii. All qualified heirs must consent in writing to personal liability for any additional estate tax imposed as a result of early disposition of qualified real property or early cessation of farm use. All other parties who have an interest in the property but who are not qualified heirs must consent in writing to the collection of any additional estate tax; and

iii. The executor must designate in the Agreement an agent with authority to act for all parties in dealing with the Commissioner on all matters relating to the continued qualification of specially valued property.

The designated agent must consent in writing to provide to the Commissioner all required information concerning that qualified property.

c. Notice of Election. The executor must also file with the return a Notice of Election of Special Use valuation (prepared by the executor) which contains the following information:

i. The decedent's name, address, and social security number;

ii. The legal description of all specially valued farm property;

iii. The special use valuation of all parcels of qualified real property, with the method used to determine the special use value; the fair market value of the property with written appraisals; and the adjusted value of the property. See 830 CMR 65C.2.1(7)(c)3;

iv. A statement certifying that the decedent and qualified heirs have satisfied each of the requirements for qualified real property. See 830 CMR 65C.2.1(7)(c)2;

v. A statement describing any period within the eight year period preceding the decedent's death during which the decedent or a member of the decedent's family did not own the real property, use it for farming purposes, or materially participate in the operation of the farm. See 830 CMR 65C.2.1(7)(c)2c; and

vi. Affidavits describing the activities which constitute material participation by the decedent or a member of the decedent's family in the operation of the farm. See 830 CMR 65C.2.1(7)(c)2d.

7. Protective election. In order to preserve the right of a decedent's estate to elect special use valuation, an executor may file a protective election of special use valuation. A protective election is dependent upon the determination of the special use value of qualified real property. In order to make a protective election, the executor must file within the prescribed time a Massachusetts Estate Tax Return (M-706), completed as if an election of special use valuation was made, with payment of the estate tax. In addition, the executor must file the following documents:

a. Form M-706N. The executor must file with the estate tax return a Special use valuation Election (Form M-706N) and write the words "Protective Election" across Form M-706N. See 830 CMR 65C.2.1(7)(c)6a, above.

b. Notice of Protective Election. The executor must also file a Notice of Protective Election (prepared by the executor) which contains the following information:

i. The decedent's name and social security number, and

ii. Identification of each parcel of qualified real property which is shown on the Massachusetts estate tax return.

c. Agreement and Notice of Election. If the Commissioner determines that the estate qualifies for special use valuation, within sixty days after the determination of the special use value of qualified real property the executor must file a completed Agreement to Special Use valuation (attached to Form M-706N) and Notice of Election. See 830 CMR 65C.2.1(7)(c)6b and c, above.

8. Modification of Agreement and Notice of Election. If the executor has not filed all of the information required by the Agreement to Special Use Valuation or the Notice of Election, section 2032A(d)3 of the 1985 Code allows a modification to correct technical defects, but only in the following circumstances:

a. Timely election. If the executor made the election of special use valuation within the time prescribed for filing the election. See 830 CMR 65C.2.1(7)(c)5a, above; and

b. Substantial compliance. If the executor fully identified the qualified real property and substantially complied with all other requirements of Treas. Reg. § 20.2032A (1985) and this regulation, 830 CMR 65C.2.1;

c. All required information. Then the executor will have a reasonable time after notification by the Commissioner, not to exceed ninety days, to provide all required information.

REGULATORY AUTHORITY
830 CMR 65C.2.1: M.G.L. c. 14, § 6(1); M.G.L. c. 62C, § 3; M.G.L. c. 65C, §§ 5(c) and 8.

REGULATORY HISTORY
Date of Promulgation: 5/26/89