I. Taxation of Inheritance Tax Future Interests - In General
The Massachusetts inheritance tax is applicable to the transfer of future interests in trusts created by decedents who died prior to January 1, 1976. Future interests are rights that come into possession or enjoyment only after the termination of a prior present interest. When a future interest comes into the possession or enjoyment of the transferee, an inheritance tax is generally owed the Commonwealth. The tax is computed using the value of the assets as of the date of transfer of the possession or enjoyment. The tax is computed using the tax rates in effect at the date of death of the original transferor. See Administrative Procedure 571, Massachusetts Inheritance Tax Procedures.
II. Existing Settlement Authority under G. L. c. 65, § 14
Under G. L. c. 65, § 14, whenever it is impossible to compute the present value of a future interest, the Commissioner may effect a settlement of the tax that would be due at some future date under chapter 65. To facilitate the settlement of such future interests, the Department of Revenue developed two special settlement procedures, the Simplified Settlement Method (SSP-2) and the Actuarial Settlement Method (SSP-3). Both of these methods involve a determination of the current value of the trust corpus that is subject to the inheritance tax and a computation of the tax pursuant to the provisions of the particular settlement procedure. Where an estate can demonstrate that it is impossible to compute the present value of a future interest and that neither of these settlement methods should be applied due to hardship or other unique facts, a special offer of settlement may be made. See Administrative Procedure 572, Settlement of Future Interest Taxes, for a description of these programs.
III. New Settlement Authority under St. 2003, c. 4, § 72
Under the new settlement authority, each estate that seeks to settle the tax on future interests pursuant to St. 2003, c. 4, § 72 must compute the tax due using either SSP-2, or SSP-3 or a special offer of settlement. In computing the tax, the value of the trust corpus at the time of the settlement proposal should be reduced by the valuation percentages noted in the table below. The reduction in the valuation percentage will decrease over the period that the Commissioner possesses this new settlement authority. Therefore, settlement proposals that are submitted and fully paid during the first two months (March and April of 2003) during which the Commissioner may exercise this authority will obtain the greatest reduction in the value of the assets allowed by this special settlement program. The reduction in valuation is applicable to the time periods that the special settlement authority remains in effect are as follows:
REDUCTION IN VALUATION
March 5, 2003 to April 30, 2003
May 1, 2003 to June 30, 2003
July 1, 2003 to September 30, 2003
October 1, 2003 to December 15, 2003
Since the discount factor will be applied to the assets in the trust corpus, the tax shall be computed using applicable rates published under Administrative Procedure 572, Settlement of Future Interest Taxes
B. How to Submit an Offer of Settlement
The trustee must report the value of the trust corpus as of the date of the settlement offer to the Department on Form L-2, Trustee's Inventory, together with substantiation of the asset values. In addition, the trustee must submit either Form L-28A, Computation of Offer of Settlement, for the Simplified Settlement Method, or Form SSP-3 for the Actuarial Settlement Method. If a special offer of settlement is made, a detailed explanation of the hardship or other unique facts is required. The Commissioner will respond to such offers within fourteen (14) business days indicating acceptance or rejection. It is expected that such special situations will be rare. A check for the full amount of the tax must accompany any offer. Offers should be mailed to the following address:
Massachusetts Department of Revenue
Inheritance Tax Unit
Attention: Mr. Kevin Conway
200 Arlington Street
Chelsea, Massachusetts 02152
C. Timely Filing and Payment of an Offer of Settlement
The settlement offer will be regarded as timely filed if the Trustee's Inventory (Form L-2) is received with full payment by the Inheritance Tax Unit of the Department of Revenue by 5:00 p.m. Eastern Time on or before April 30, 2003 to qualify for the 20% reduction; by June 30, 2003 to qualify for the 15% reduction; by September 30, 2003 to qualify for the 5% reduction or by December 15, 2003 to qualify for the 2% reduction. If a settlement offer is delivered by U.S. mail (or a recognized commercial delivery service) to the Inheritance Tax Unit after April 30, 2003 (for the 20% reduction), June 30, 2003 (for the 15% reduction), September 30, 2003 (for the 5% reduction) or December 15, 2003 (for the 2% reduction), the settlement offer will be considered timely if the date of the U.S. postmark (or other substantiating date mark) is not later than the respective last day of the time period corresponding to the percentage reduction.
If a trustee filed only the Form L-2 and the full payment of the tax to meet a filing deadline, the trustee must later file a Form L-28A or a Form SSP-3 or a special offer of settlement before the commissioner can consider an offer. The trustee must file this additional document within thirty (30) days of the filing date of the Form L-2 and the payment.
For trustees or their representatives filing multiple settlement offers, an incomplete settlement offer filed during one of the four periods will qualify for the reduction in value percentage for that period provided that the tax payment received with the offer is greater than the amount of tax finally determined due. The Department will refund any overpayments without interest.
In the event of errors in the computation of the tax, the Department will refund any overpayment without interest. If the correct amount of the tax is greater than the amount computed on the settlement offer, the Department will notify the estate of the underpayment as soon as possible. Underpayments paid within thirty (30) days of the notice date will not be subject to interest and will not affect the validity of the settlement offer. Underpayments that are not paid within thirty (30) days of the notice date will be subject to interest. An offer of settlement may be rejected by the Department for failure to comply with the provisions of this TIR.
Questions regarding settlements of the inheritance tax on future interests under this TIR may be directed to the Inheritance Tax Unit at 617-887-6808.
/s/ Alan LeBovidge
Commissioner of Revenue
March 6, 2003