501. Taxpayer Assistance
Professional assistance with Massachusetts estate tax problems is available by calling the estate tax information line at (617) 887-6930 between 10:00 a.m. and 4:00 p.m. Monday through Friday.
Walk‑in assistance with Massachusetts estate tax problems is available between 9:00 AM and 1:00 PM, Monday through Friday, at 200 Arlington Street, Chelsea, MA.
502. Filing/Tax Forms
502.1. Filing Requirements in General
For deaths occurring on or after January 1, 2003:
Form M-706, Massachusetts Estate Tax Return, must be filed by the executor of every estate when the Massachusetts gross estate of a resident decedent, or the Massachusetts gross estate of a non-resident, computed as if the decedent had been a resident, exceeds that applicable exemption. The Massachusetts Nonresident Decedent Affidavit, Form M-NRA, must be filed for the estates of all nonresidents. The applicable exemption is:
$1,000,000 for deaths occurring in 2006 and thereafter.
The Massachusetts estate tax was decoupled from the federal estate tax beginning with deaths occurring in 2003. The Massachusetts estate tax is an amount equal to the federal credit for state death taxes computed using the Internal Revenue Code (“Code”) as in effect on December 31, 2000. All references are to the Code as in effect on December 31, 2000.
As a result of the decoupling, the threshold amounts for filing Massachusetts and federal estate tax returns will be different for the estates of decedents dying on or after January 1, 2003. Some estates will file a Massachusetts estate tax return but no federal estate tax return, and some estates will pay a Massachusetts estate tax but no federal estate tax. Future changes to the federal estate law will not affect the Massachusetts estate tax law, as the reference for Massachusetts is the Code as in effect on December 31, 2000.
502.2. Tax Forms
All estate tax forms are available on DOR’s website or by calling (617) 887-6940.
502.3. Reproduction of Tax Forms
Forms M-706 may be reproduced provided that the copy filed with the Estate Tax Unit bears the original signature of the party responsible for filing the return. Handwritten copies are not recommended and pencil copies will not be accepted.
See TIR 95-8 in the Administrative Volume for further guidelines on reproducing forms and schedules.
503. Extensions of Time to File Tax Returns
Additional time to prepare and file Form M-706 is simplified per TIR 16-19: Simplified Extension Process Individuals, Fiduciaries, Partnerships and Estates. If the estate is unable to pay the estimated tax by the due date of the return, the estate should use the new Form M-4768 and check the appropriate box in accordance with the provisions of Administrative Procedure 506.2. This is not automatic and must be requested prior to the due date of the return. The applicant will receive, by mail, the Estate Tax Unit’s approval or disapproval of the extension request. Subsequent extensions can be granted provided the applicant files another M-4768 prior to the expiration of the first extension period. Interest will accrue on any unpaid tax from the original due date of the return. If the applicant does not pay at least 80% of the tax finally determined to be due, the extension request will be deemed to be void and the return will be subject to late filing penalties.
Time limits for assessment and collection of a tax are based upon the date a return was filed or was required to be filed, whichever is later. Therefore, a grant of extension of time to file not only extends the due date of a return but also the time in which DOR can assess and collect the tax.
504. Amending Tax Returns
An executor may file an amended return reporting an additional asset at any time. An executor may file an amended return seeking a reduction in the tax due within the time limitations for filing an abatement or reporting a federal change. See AP 505, TIR 99-14, and AP 627. This is accomplished by filing Form M-706 with the changes from the original return and filling in the appropriate “Amended return” oval in the middle of the first page.
Severe penalties apply to situations of willful attempts to understate the decedent's gross estate. An extended period of limitation upon assessment applies to situations of omission of 25% of decedent's gross estate from the return.
505. Federal Change Reporting
The executor must notify the Estate Tax Unit of any final federal determination following audit of the federal return that alters the federal taxable estate as originally reported. This is accomplished by filing an amended Form M-706 and paying any additional Massachusetts estate tax and additional interest thereon within two months of the receipt of the final federal determination
See AP 508 for information on the penalty for not reporting changes in the federal taxable estate.
506: PAYMENT OF TAXES
506.1. Due Date
Estate taxes are due nine months after the decedent's death. Payment of all or part of this liability may be required prior to the statutory due date if the executor is requesting a release of lien on the decedent's real estate before the estate has received a Massachusetts estate tax closing letter (Form M-E.C.L).
506.2. Extensions of Time to Pay
Extensions of time to pay the estate tax may be requested by filing Form M-4768 prior to the due date of the tax. The executor must show reasonable cause for not paying the tax in full on the due date. If the executor can show that the payment of any part of the tax on the due date would result in undue hardship to the estate, the Estate Tax Unit may extend the time for payment for any reasonable period of time not to exceed three years. The extension of time to pay is authorized by G.L. c. 65C, § 10, and is limited to the estate tax.
G.L. c. 62C, § 36 limits the payment of refunds on certain late filed returns. The limitations apply to returns filed on or after December 5, 2003. Generally, applications for refunds filed more than 3 years from the due date of the return, without regard to extensions, or 2 years from the date the tax was paid, whichever is later, will be denied. If the refund is denied pursuant to this provision, there is no credit applied to any other tax type. For additional information regarding this limitation on the payment of refunds, see TIR 04-3, New Limitations on Payment of Refunds Claimed on Late Filed Returns.
507. Audit of Returns; Notice of Intent to Assess; Hearings
For dates of death on or after January 1, 2003:
Each return filed with the Estate Tax Unit is examined soon after filing. At that time an examiner decides either to accept the return as filed, or to select the return for audit. Most cases are accepted as filed, and a closing letter is issued shortly after acceptance.
Selected cases are assigned on a first‑in, first‑out basis to members of the audit staff for further examination. The assigned examiner may request any additional information necessary to complete the audit. The executor should retain and be able to produce all of the decedent's records going back at least three years prior to death. The executor should produce these records promptly when requested, or the examiner will proceed to conclude the audit with the best available information.
Once the examiner has received all the information deemed necessary to resolve uncertain issues and complete the audit, he or she will take one or two courses of action. If the examiner is satisfied after examining the additional information that the return is acceptable without change, the return will be accepted and a Massachusetts estate tax closing letter (Form-M-E.C.L.: Estate Tax Closing Letter) showing no additional tax liability ("zero balance") will be issued along with any certificates releasing the estate tax lien on real estate. If the examiner believes that the tax shown on the return is incorrect, he or she will prepare a written Notice of Intent to Assess ("NIA") which explains in detail the proposed changes in the return as filed. The NIA will be sent to the personal representative and their Power of Attorney, who may then request a hearing with the Office of Appeals regarding the NIA. This request must be received within 30 days of the issuance of the NIA. The case will be transferred to the Office of Appeals where a hearing will be scheduled as soon as mutually convenient.
Following the hearing on the NIA, the hearing officer may take one of three courses of action. He/she may withdraw the NIA, agreeing that the original return is acceptable as filed. He/she may issue an amended NIA reflecting changes brought about by information obtained through the hearing. Or he/she may uphold the NIA as issued without changes. After 30 days have passed since the issuance of the NIA, a Notice of Assessment (NOA) which reflects the proposed changes in the assessment. The corrected tax will show as the amount assessed, and any balance due will be payable within 30 days of the date of the NOA. Thereafter, the estate can contest the assessment only through the abatement process. The closing letter is issued only when there is a zero balance.
The Office of Appeals is authorized to settle civil tax disputes prior to assessment or litigation pursuant to G.L. c. 62C, § 37C. A taxpayer may initiate the dispute resolution process at any time after a Notice of Intent to Assess ("NIA") is issued. See Administrative Procedure 628: Resolution of Disputes at the Office of Appeals for details as to initiating the settlement process and settlement procedures.
508: INTEREST AND PENALTIES
As of January 1, 1993, the Massachusetts interest rate is based on the federal short‑term rate plus four percentage points, compounded daily. G.L. c. 62C, § 32, as amended. For more information on calculation of interest, see 830 CMR 62C.33.1, TIR 92-6 and TIR quarterly rate updates.
Late Filing Penalty. The penalty for failure to file Form M-706 by the due date, or within an authorized extension, is 1% per month (or fraction thereof) of the balance due, up to a maximum of 25%. This penalty is applied to the tax as finally determined to be due. G.L. c. 62C, § 33(a).
Late Payment Penalty. The penalty for failure to pay the amount shown due on Form M-706, or any portion thereof, by the due date or within an authorized extension, is 1% per month (or fraction thereof) up to a maximum of 25%. G.L. c. 62C, § 33(b).
Late Payment Penalty. The penalty for failure to pay any additional assessment within thirty days of the billing date is 1% per month (or fraction thereof) up to a maximum of 25%. G.L. c. 62C, § 33(c).
Federal Change Penalty. The penalty for failure to file a Report of Federal Estate Tax Change and pay any additional tax due within two months of receipt of notice of final determination of federal estate tax changes is 10% of the additional tax due. G.L. c. 62C, § 30. A Report of Federal Estate Tax Change is filed on an amended Form M-706 by filling in the “Amended return due to federal change” oval in the middle of page 1
508.3. Adjustment of Interest and Abatement of Penalties
Interest that has accrued on unpaid tax or penalty can be reduced only if and to the extent that the underlying tax or penalty is abated. After an estate tax liability is assessed, the executor may apply for an abatement of any penalties that have been assessed for late filing of the estate tax return or for late payment of the estate tax liability. For more information on abatements, see AP 627 and for information on the abatement of penalties, see AP 633.
509: OBTAINING TAX RETURN INFORMATION
509.1. Requesting Photocopies
To request a copy of a previously filed estate tax return, a written request must be submitted which includes the decedent's name, social security number, the date of death and the daytime telephone number of the requester. The request must be signed by the individual who signed the original return or, if signed by someone else, must be accompanied by a valid power of attorney. Mail the request to: Mass. DOR, Estate Tax Unit, P.O. Box 7023, Boston, MA 02204. See AP 601.2. Please be advised that estate tax filings on MassTaxConnect are not available.
509.2. Disclosure Rules
Information contained in an estate tax return can be disclosed only to the person filing the return or to the representative of that person under a valid power of attorney. A person seeking to obtain a certificate releasing the estate lien on the decedent's real estate must be the responsible person as defined in G.L. c. 65C, § 6, or must be in possession of a valid power of attorney from the responsible person.
510. Power of Attorney
A Power of Attorney (Form M-2848) will be required in all instances where a representative requests any information contained in the return. All closing letters and certificates releasing the estate tax lien on the decedent's real estate will be sent to the personal representative along with a copy to the legal representative if the personal representative or other responsible party has executed a power of attorney. If there is no power of attorney with the return, these documents will be sent to the personal representative or other responsible person.
511. Change in Information or Status
The personal representative of an estate may resign or otherwise cease to serve in that capacity. The Estate Tax Unit must be advised of any change in the office of personal representative so any closing letters or certificates releasing the estate tax lien are eventually sent to the correct individual. If the personal representative had given a power of attorney to someone who ceases to act as the authorized representative, the Department must be informed of that change of relationship. Any successor representative must obtain and file with the Estate Tax Unit an appropriate Power of Attorney prior to engaging in any discussions with the Estate Tax Unit regarding the estate.
512. Further Appeals
The Appellate Tax Board has exclusive jurisdiction over appeals from the refusal of the Commissioner to abate a tax based upon the valuation of an asset of the decedent's estate.
The Board has concurrent jurisdiction with the appropriate Probate Court over appeals from the refusal of the Commissioner to abate a tax based upon any other matter arising under G.L. c. 65C.
The taxpayer may appeal to the Probate Court having jurisdiction over decedent's estate from the refusal of the Commissioner to abate any estate tax, in whole or in part, provided that the issue was not the valuation of an asset of the decedent's estate.
521: PROCEDURES FOR RELEASE OF THE MASSACHUSETTS ESTATE TAX LIEN
521.1. In General
The Commonwealth acquires a lien against all real estate located in Massachusetts in which the decedent possessed an interest at the time of death and on real estate located in Massachusetts which the decedent transferred under certain circumstances prior to death. There are two methods, based on circumstances, to remove the lien; the release of lien: the Certificate Releasing Estate Lien and an affidavit.
In order to obtain a release of this lien for deaths on or after January 1, 2003, if the total gross estate, plus any adjusted taxable gifts, is equal to or exceeds the one million dollar threshold, Form M-706 and Federal Form 706 (1999 revised version ) must be filed. The release of estate tax lien is required for all non‑probate real estate and, in general, for probate real estate where there is a pending sale or mortgage commitment and no Massachusetts Estate Tax Closing Letter has been issued. Non‑probate real estate includes real estate held jointly with right of survivorship or as tenants by the entirety, real estate held in trust and any other real estate included in the gross estate, pursuant to I.R.C. §§ 2036 through 2041, and G.L. c. 65C § 1(d)(1).
For dates of death on or after January 1, 2003 where the gross estate, plus adjusted taxable gifts, falls below one million dollars, an affidavit of the executor, subscribed to under the pains and penalties of perjury, recorded in the registry of deeds and stating that no filing of a Massachusetts estate tax return is required, shall release the gross estate of the estate tax lien.
521.2. Real Estate Transferred to a Bona Fide Purchaser
Under certain circumstances, real property that is included in decedent's estate because the decedent transferred the property for inadequate consideration within three years of death will be divested of the Massachusetts estate tax lien. If ALL of the following conditions are met, then when the real property is transferred to a subsequent bona fide purchaser, the lien will shift from this real estate to other assets owned by the person who transferred this real estate to the bona fide purchaser:
the real property was transferred by the decedent prior to death by a deed not disclosing an intention that it take effect in possession or enjoyment at or after the decedent's death; and
such deed was recorded prior to the decedent's death; and
the real property was subsequently transferred by the decedent's transferee, or a transferee of such transferee, to a bona fide purchaser for adequate consideration in money or money's worth.
On July 1, 1995, D owned real estate in his own name. On that date D transferred the property outright to his son, S, for no consideration. S recorded this deed on September 1, 1995. D died on January 1, 1996. On March 15, 1996, S sold the property to B for $150,000 which was the fair market value of the property. B takes this property free of the lien for D's estate tax, and the lien then attaches to other property of S.
521.3. Notification to Probate Court by Foreign Fiduciary
In order to obtain from the probate court a license to sell real property, a foreign fiduciary must file in the probate court a certificate of the Commissioner of Revenue showing that the Massachusetts estate tax has been paid or that payment has been secured or that no tax is due. G.L. c. 202, § 32. For dates of death on or after January 1, 1997, the certificate of the commissioner is not required.
521.4. Expeditious Release of Lien for Sale of Real Property or Mortgage Commitment
When a sale or mortgage commitment is pending on real property that is located in Massachusetts and is included in a decedent's Massachusetts gross estate, the Estate Tax Unit expedites the release of estate tax lien. To obtain an expeditious release of lien you must file:
- completed Form M-706 for the estates of decedents dying with a Massachusetts estate tax return filing requirement;
- copy of executed purchase and sale agreement or mortgage commitment letter;
- an attested copy of the recorded deed or certificate of title which created the decedent's interest in the property;
- attested copies of probate court petition and will, if any; and
- check for the tax, if any.
Failure to submit any of these items may delay the release of lien. Following expeditious issuance of the Certificate Releasing Estate Lien, the return will undergo routine examination and an Estate Tax Closing Letter will be issued in due course.
For deaths occurring on or after January 1, 1997:
If Form M-706 cannot be completed prior to the date of the sale, you may request the release of lien on Form M-4422, Application for Certificate Releasing Massachusetts Estate Tax Lien (revised December 1996) if all of the following conditions are met:
- the due date of Form M-706 has not arrived and the return cannot be completed prior to the sale; and
- an executed purchase and sale agreement or mortgage commitment letter exists.
For the estates of decedents dying on or after January 1, 1997 and not requiring the filing of a federal estate tax return, an affidavit of the executor, subscribed to under the pains and penalties of perjury, recorded in the registry of deeds and stating that the gross estate of the decedent does not necessitate the filing of a federal estate tax return, shall release the gross estate of the estate tax lien.
NOTE: Form 4422 is NEVER a substitute for Form M-706 which must be filed within nine months of the decedent's death.
Mail applications for release of lien to:
Massachusetts Estate Tax Unit
P.O. Box 7023
Boston, MA 02204
Hand deliver applications for release of lien or submit them by a carrier that requires a street address to:
Massachusetts Estate Tax Unit
200 Arlington Street
Chelsea, MA 02150
File on MassTaxConnect by going to Mass.gov.
For hand delivered and mailed applications, the envelope should be marked "Attention: Expeditious Lien Release".
521.5. Release of Lien Where Estate Tax Not Paid
The Estate Tax Unit may release the lien on all or any part of the real estate contained in a decedent's Massachusetts gross estate provided that the Estate Tax Unit is satisfied that the collection of the tax will not be thereby jeopardized. The Estate Tax Unit may issue a release of lien on part or all of a decedent's real estate where there is an outstanding liability provided that suitable arrangements have been made to secure payment of the liability.
531: Requirement to File a Fiduciary Income Tax Return
Every estate subject to Massachusetts jurisdiction which receives gross income in excess of $100.00 must file Form 2: Massachusetts Fiduciary Income Tax Return.
Income earned by the estate, commencing on the day after a decedent's date of death, is reported on the Form 2. Income in respect of a decedent (income that the decedent had a right to receive but which is not includible in the decedent's final Form 1) may also be included on the Form 2. Consult the Form 2 Instructions for detailed information.
Fiduciaries are personally liable for any tax under these provisions. Fiduciaries intending to make a final distribution before the end of any year are required to file returns and pay any taxes thereon before making such distribution. See the Form 2 Instructions for information concerning estimated tax provisions.
The Department has developed an extensive exchange program with the Internal Revenue Service (IRS) regarding federal U.S. Forms 706, federal Estate Tax Returns, and Forms 1041, federal Fiduciary Income Tax Returns. Discrepancies and failures to file, except those allowed under Massachusetts law, will be identified and may result in an audit or further investigation. Fiduciary inquiries may be directed to the Customer Service Bureau, P.O. Box 7010, Boston, MA 02204, (617)887-MDOR or toll free within Massachusetts at 1(800)392-6089.
571: MASSACHUSETTS INHERITANCE TAX PROCEDURES
571.2. Probate Required.
571.4. Valuation and Description of Items.
571.5. Form L-16A-Time and Method of Filing.
571.6. Preparation of Form L-16A.
571.6.1. Gifts Within Two Years of Death.
571.6.2. Transfers Intended to Take Effect After the Death of the Decedent.
571.6.3. Life Insurance.
571.6.4. Jointly Held Property.
571.7. Resident Decedents-Estates Not Requiring Probate (Form L 53).
571.8. Statement of Debts, Expenses and Additional Property (Form L-1).
571.9. Determination of Value.
571.10. Appeal From Determination of Value.
571.11. COMPUTATION OF TAX-TAX TABLE
571.11.2. Computation of Self-Assessing Tax; Due Dates; Penalty and Interest.
571.11.3. Rate and Surtax Tables for Deaths Prior to January 1, 1970.
571.12. Appeal to Probate Court.
571.13. Due Date of Tax on Present Interests.
571.14. Due Date of the Tax on Future Interests.
571.15. Postponement of Due Date of Tax.
571.16. Transfer and Removal of Inheritance Tax Lien.
571.17. Tax Bills and Waivers.
571.18. Waivers on Real Estate Passing by Survivorship, Etc.
571.19. Exemptions From Tax.
571.22. Estate Tax.
571.22.1. Resident Decedent.
571.22.2. Nonresident Decedents Who Are Residents of the United States.
571.22.3. Nonresidents of the United States.
Captions editorially supplied by West Group
The inheritance tax is still applicable to the estates of persons who died on or before December 31, 1975. At the moment of death, an inheritance tax lien attached to every asset of a person's estate and to other property subject to tax, such as the interest of surviving joint owners. This lien must be discharged before the property may legally be transferred. These procedures are designed to accomplish this efficiently and expeditiously. They are also designed to deal with the taxability of, and settlements relating to, future interests.
571.2. Probate Required
Where property is in the sole name of the deceased at the time of death, a court decree is necessary to pass title to the property to those designated as beneficiaries by the will or the laws of intestate succession. This decree must issue from the probate court of the county where the deceased was domiciled.1
A complete inventory is one of the essentials of the Inheritance Tax Return. In probate cases this inventory consists of:
(1) two copies of Form L-16-inventory; and
(2) Form L-16A-supplemental information.
The executor, administrator or trustee must also file a court‑attested copy of the Probate Petition for Appointment, listing the heirs. In cases where there is a will (testate cases), a court‑attested copy of the will must be filed as well.
Form L‑16-Inventory: Form L‑16 is an inventory or summary and valuation of all assets owned solely by the decedent. This inventory includes any real estate, stocks, bonds, bank accounts, personal property or unincorporated business interests solely in the decedent's name.
571.4. Valuation and Description of Items
All assets included in decedent's gross estate are reported at their fair market value on the date of decedent's death. There is no alternate valuation date. "Fair market value" is the price at which the property would change hands between a willing buyer and a willing seller, neither being under a compulsion to buy or sell and both having a knowledge of the relevant facts. The taxpayer should be guided by the definitions and explanations set out in the 1975 U.S. Treasury Regulations, § 20.2031 (See Appendix of this volume).
571.5. Form L-16A-Time and Method of Filing
When the executor or administrator files the required Form L-16 (or an attested copy of the probate inventory), as described in AP 571.3 and AP 571.4, he or she must also file Form L-16A, "Supplemental Information for Inheritance Tax Purposes." This form lists all property subject to the inheritance tax but not includable on Form L-16 because it is not part of the probate estate. The provisions of 571.4 relating to the description and valuation of property included in the L-16 are also applicable to Form L-16A.
If an executor, administrator, trustee or any other person liable for an inheritance tax neglects or refuses to file Form L-16A after having been requested to do so, the Commissioner is authorized to certify an inheritance tax at the highest possible rate. (G.L. c. 65, § 29).
For deaths before July 22, 1971, annuities, limited interests and life estates reported on Form L-16A are to be valued in accordance with the American Experience Tables at 4% compound interest. (G.L. c. 65, § 13). These tables are reproduced in the Appendix of this volume.
For deaths on or after July 22, 1971 through December 31, 1975, annuities, limited interests and life estates are to be valued in accordance with the 6% actuarial tables contained in part in 1975 Treas.Reg. § 20.2031-10 and in the Actuarial Values Table-Factors at 6 Percent (See Appendix of this volume).
571.6. Preparation of Form L-16A
Form L-16A should contain an accurate report of all transfers of the types described in the following subsections. On Schedule D, list the name of every person, corporation or organization entitled to any share of the estate or left any legacy or devise by will, indicate any relationship to the deceased, and state whether the transferee was living or in existence when the decedent died. If a blood relative of the testator was left a legacy but died before the testator, Schedule D should list the names of issue who will take the legacy, or state that there are no issue. If any of the heirs of an intestate decedent take that share of the estate which their parent would have taken if living (i.e., by representation), the heirs should be listed by family groups so that the Estate Tax Unit can determine the fractional part of the estate to which each heir is entitled.
If under the terms of the will any person takes an interest for life or for a limited time, whether definite or indefinite, that person's birth date must be given. This is unnecessary, however, in the case of an heir of an intestate or of a legatee who takes his legacy outright.
Deaths prior to July 22, 1971. Annuities and life interests reported on Form L-16A are to be valued in accordance with the "American Experience Tables" at four percent compound interest. (G.L. c. 65, § 13). Deaths on or after July 22, 1971 through December 31, 1975. Annuities, life interests and limited interests are to be valued in accordance with the tables used by the Federal Estate Tax Section. See Tables A(1) and A(2) (Life Estates and Annuity Factors) contained in 1975 Treas.Reg. § 20.2031-10(f) and in the Actuarial Values Table-Factors at 6 Percent (See Appendix of this volume).
571.6.1. Gifts Within Two Years of Death
All property transferred by the decedent within two years of death must be included on Schedule A of Form L-16A, but a transfer made "for full consideration in money or money's worth" ["full consideration"] is not taxable. Such consideration exists only if the decedent received money, property or services at least equal in value to the property transferred. A taxpayer contending that a transfer is not subject to tax bears the burden of proving both the consideration and its value.
If the decedent made a transfer without full consideration within the one‑year period prior to death, the transfer is presumed made in contemplation of death and is subject to the inheritance tax, unless the presumption is rebutted. (G.L. c. 65, § 3). Transfers made more than one, but less than two years prior to death may or may not be in contemplation of death, depending upon the circumstances. Id. A taxpayer contending that no tax is due upon a transfer made without full consideration less than two years prior to death should attach a complete statement supporting the contention to Form L-16A.
571.6.2. Transfers Intended to Take Effect After the Death of the Decedent
All transfers made by the decedent during his lifetime, but intended to take effect in possession or enjoyment after his death are subject to tax, and should be included on Schedule B of Form L-16A. Thus, if a grantor reserves the right to receive the income from a trust during his lifetime, the trust is taxable. The same result follows where any shift in economic benefits occurs as a result of the grantor's death. Taxability is not confined to gifts in trust. For instance, a survivor annuity contract is taxable to the extent it was purchased by the decedent. Pension and retirement rights or similar death benefits may be taxable, and must be reported on this schedule. Again, a taxpayer contending that a transfer was made for "full consideration in money or money's worth" should attach a full statement supporting the contention to Form L-16A.
Where any trusts created by the decedent exist at death, attach a list of these trusts and a summary of their provisions to Form L-16A. If upon request anyone liable for an inheritance tax fails to supply sufficient information about transfers made during the decedent's lifetime, the Commissioner may assess the inheritance tax at the highest possible rate. (G.L. c. 65, § 29).
Property already listed on Schedule A of Form L-16A should not be listed on Schedule B.
571.6.3. Life Insurance (persons dying on or after July 22, 1971 through December 31, 1975. See St.1971, c. 555, § 52.)
Insurance on the life of the decedent is taxable except for the first $25,000 of proceeds payable to the surviving spouse, issue, or trustees of inter vivos trusts for the benefit of the spouse or issue. The exemption applies first to proceeds received by the surviving spouse, next to those receivable by surviving issue (allocated among them in proportion to the amounts receivable by each), next to proceeds receivable by trustees for the spouse, then to those receivable by the trustees for the issue.
EXAMPLE: Mr. Mont, a resident of Massachusetts, died August 1, 1971. Life insurance proceeds reported in Schedule B of L-16A are:
To widow, Mary
|To son, John
|To daughter, Marie
(1) Since Mary's proceeds are less than $25,000, they are entirely exempt.
(2) The balance of the $25,000 exemption is $10,000, and it is initially divided equally between decedent's children. Marie, however, has only $2,000 in proceeds and cannot use all of her $5,000 exemption. Marie's $2,000 is exempt, and the remaining excess ($3,000) is attributed to John, who now has a total exemption of $8,000. This is applied against the $12,000 in proceeds John received, leaving only $4,000 of his insurance proceeds subject to tax. His personal exemption ($15,000 in this example) will be applied before any liability for tax is determined. See 571.11, Computation of Tax, for more information regarding personal exemptions.
571.6.4. Jointly Held Property
All property held by the decedent with others as joint tenants or tenants by the entirety should be included in Schedule C of Form L-16A. All property, real, tangible, and intangible, must be reported.
Property held by the decedent with others as joint tenants or tenants by the entirety is taxable to the extent of the contribution of the decedent. (G.L. c. 65, § 1).
In the case of property held by the decedent and his or her spouse as tenants by the entirety (or, in some cases, as joint tenants), an additional exemption is available for (1) the full value of single family residential property occupied by the decedent and spouse as their domicile, or (2) the value of multiple family residential property actually occupied by the spouses as their domicile, to a maximum of $25,000. (G.L. c. 65, § 1)
Whenever an entry is made in the column "Contribution by Others than Decedent" on Schedule C of this form, a copy of the deed creating the tenancy by the entirety or joint tenancy must accompany Form L-16A. A detailed statement under the penalties of perjury verifying the amount of the contribution by the survivor or by third parties must also be included.
Property already listed on Schedule A or B should not be included on Schedule C, but both the "Real Estate" and "Personal Property" portions of Schedule C must be completed.
571.7. Resident decedents-Estates Not Requiring Probate (Form L 53)
In most cases, none of the decedent's property is within the jurisdiction of the probate court. This is so, for instance, when the decedent's entire property passes by way of inter vivos trusts, gifts, or jointly held property. This property may, however, be subject to tax and must be reported to the Estate Tax Unit on Form L 53, which should include all information necessary to permit the Estate Tax Unit to compute any tax.
Deaths prior to July 22, 1971. Form L 53 must be filed within 15 months of the date of death, or, if the estate is in excess of $60,000, within three months of the date of the federal agent's Closing Letter.
Deaths on or after July 22, 1971 through December 31, 1975. Form L 53 must be filed on or before the date the tax is due; the tax must be paid within 9 months of the date of death. (G.L. c. 65, §§ 7, 22). The entire tax must be paid by the due date or interest will be assessed on any balance.
The provisions of 571.4 (relating to the description and valuation of property included in the inventory) and the provisions of 571.6 (relating to nonprobate assets) are also applicable to Form L 53.
571.8. Statement of Debts, Expenses and Additional Property (Form L-1)
When a taxable estate is valued at $100,000 or less, the executor or other fiduciary may elect whether to take either Table Deductions or actual deductions at the time the Inheritance Tax Return is filed. (G.L. c. 65, § 22). Note that the taxable estate is not limited to the probate estate alone. If the probate estate plus the taxable joint property, etc. is in excess of $100,000, actual deductions must be taken in the computation of the inheritance tax.
Where a deduction is allowable for Federal Estate Tax, the Estate Tax Unit will not compute the tax due before final determination of the Federal Estate Tax, since any change in that tax automatically changes the amount of the available deduction. After the final determination has been made, the fiduciary must, within three months, file: (1) a copy of the Federal Closing Letter, if any; (2) a complete copy of the Federal Estate Tax Return (Form 706); and (3) a copy of the Line Adjustments, if any.
No debts, expenses, or taxes should be included on Form L-1 unless they are a proper charge against the principal of the estate and are actually paid from its funds. For example, that portion of the Federal Estate Tax applicable to property not taxable in Massachusetts is not deductible if the recipient of the property is to pay the tax. Interest charges accruing after death are not deductible. Mortgages are not included as debts of the decedent if only the decedent's equity in the property constituting the security has been included on Form L-16. All disputed claims against the estate should be listed with a statement that they are disputed.
Debts of the estate include all unpaid income taxes on income received prior to the decedent's death, even if assessed after death, and all income taxes on items received by the estate which are subject to inheritance tax. Such items include dividends recorded prior to the date of death but payable after, and any interest accrued to the date of death. Local taxes and special assessments are to be included as debts only if they were assessed prior to death.
Expenditures made after the death of the decedent are deductible as expenses of administration only if they are attributable to the settlement of his estate. Reasonable administration fees and reasonable counsel fees actually paid for services rendered to the executor or administrator will be deductible.
The trustee or executor should use Form L-1 to report any additional property of the decedent discovered after the inventory is filed (other than income accruing after the decedent's death.)
571.9. Determination of Value
If the Commissioner determines that the values indicated on the inheritance tax return are incorrect, he must give notice to the party responsible for paying the tax on the particular property in question within six months of the filing of the return. Notice must be in writing and must be sent by registered mail. A taxpayer may waive this notice. If the Commissioner fails to give notice (and the taxpayer has not waived notice) the values shown on the return become final six months after filing. Any property for which satisfactory valuation information has not been given may be excluded from this limitation period. (G.L. c. 65, § 25).
Deaths on or after January 1, 1962 to October 1, 1970. The Commissioner must notify the taxpayer of any change made in the value of the property within 6 months of the filing of a full and complete inventory. If he does not do so, the originally stated value is final.
Deaths on or after October 1, 1970 through December 31, 1975. The Commissioner must notify the taxpayer of any change made in the value of the property within 6 months of the filing of the Inheritance Tax Return. If he does not do so, the originally stated value is final.
Deaths on or after October 1, 1970 through December 31, 1975: Assessment. If the Commissioner determines that the full amount of the tax due has not been assessed, he must assess any additional taxes within one year of the filing of the last essential part of the Inheritance Tax Return, or within six months after the final valuation of property subject to tax, whichever is later. (G.L. c. 65, § 27).
571.10. Appeal From Determination of Value
Deaths on or after January 1, 1962 through December 31, 1975. If a fiduciary or other party is dissatisfied with the valuation of the Commissioner, a request to change it may be made to the Department of Revenue within two months of the date of notice of the determination of value (G.L. c. 65, § 26). A request must be submitted in writing to:
Commissioner of Revenue, Estate Tax Unit, P.O. Box 7023 Boston, MA 02204
The request must be accompanied by a detailed statement of the taxpayer's contentions and the facts upon which he intends to rely. The Commissioner will not consider any material not submitted in a written statement signed under the penalties of perjury.
If the Commissioner fails to act on any request within two months of the date of receipt, the request is deemed denied, and the taxpayer then has two months to appeal to the Appellate Tax Board. (G.L. c. 65, § 26). An appeal from a decision of the Commissioner may be taken to the Appellate Tax Board within two months of the date of the decision.
NOTE: The time limits for appeals to the Appellate Tax Board must be carefully observed. Failure to do so will leave the taxpayer without redress for any alleged over‑valuation.
For relief in situations involving a determination of the decedent's contribution to jointly‑held property or the extent of the decedent's interest when he was one of several co‑owners, see 571.12 (Appeals to the Probate Court).
571.11. COMPUTATION OF TAX-TAX TABLE
The inheritance tax is determined by the value of property passing to an individual beneficiary and by the beneficiary's relationship to the deceased. The inheritance tax is computed on the total amount passing to each beneficiary. See G.L. c. 65, § 1. For instance, if the widow (a) receives a specific bequest of $10,000 under the will; (b) is the surviving joint tenant of property worth $25,000; and (c) was the recipient of a gift in contemplation of death in the amount of $5,000, the applicable tax bracket is $40,000. NOTE: For deaths prior to January 1, 1970, refer to the rate and surtax tables, these Procedures 571.11.3, in effect on the date of death to determine the applicable tax and surtaxes.
No tax is payable on property passing to spouse of the deceased unless he or she takes more than $30,000. If the value of all property passing to the surviving spouse exceeds $30,000, the tax is payable on the full amount of the property passing, including the first $30,000.
No tax is payable on property passing to all other Class A beneficiaries (father, mother, child or grandchild) unless the total amount taken exceeds $15,000; if it does, the tax is payable upon the full amount, including the first $15,000.
No tax is payable on property passing to any person other than those named above unless he or she takes more than $5,000, in which case the tax is payable upon the full amount, including the first $5,000.
571.11.2. Computation of Self-Assessing Tax; Due Dates; Penalty and Interest
Death on or after July 15, 1968 and before July 22, 1971.
(a) The Inheritance Tax Return must be filed within 15 months of death. Failure to file the return will result in the assessment of a late filing penalty of 5%/month to a maximum of 25% of the inheritance taxes due.
(b) The interest rate for payments of tax due prior to July 15, 1968 is 6% from the due date through July 15, 1968. The rate of interest from July 16, 1968 through July 1, 1980 is 8%. The interest rate after July 1, 1980 is determined with reference to G.L. c. 62C, § 32 as amended.
Deaths on or after July 22, 1971 through December 31, 1975:
(a) The Inheritance Tax Return must be filed within 9 months of death. Failure to file the return will result in the assessment of a late filing penalty of 5%/month to a maximum of 25% of the inheritance taxes due.
(b) The interest rate for payments of tax due on or after July 22, 1971 is 8% from the due date through July 1, 1980. The rate of interest after July 1, 1980 is determined with reference to G.L. c. 62C, § 32, as amended.
The Inheritance Tax Return consists of Form L-19X (Self-Assessment Form) plus all other papers essential for the computation of the tax. For example, a return for a testate resident decedent with no Federal Estate Tax would contain:
- Form L-19X (Self-Assessment)
- Attested copies of the Will and the Petition
- Form L-16 (Tax Commissioner's Inventory) (2 copies)
- Form L-16A (Supplemental Information)
- Form L-1 or Form TD-1A (Acceptance of Table Deduction)
Other necessary papers essential to assessing the tax should also be included, e.g., an affidavit substantiating a claim of contribution by a surviving joint owner.
Deaths after December 31, 1967 through December 31, 1975; Self-Assessment of Inheritance Taxes. For deaths on or after December 31, 1967 through December 31, 1975, the tax is deemed assessed when the required documents are filed or when the tax is due, whichever is later. The assessment is the amount of tax due shown on the computation sheet (Form L-19X). The taxpayer must file this Form by the later date. (Form L-19X and instructions are available upon request).
The taxpayer's computation of the tax due is subject to audit. If after audit the computation is found to be correct, a bill for the amount of the tax shown will issue, less payments made, if any. If an audit discloses a deficiency, a receipted bill will issue for the amount of any payment made along with a bill for the balance. If there has been an overpayment of tax, or if no tax is due, a refund may issue.
If it is necessary for any reason to redetermine a taxpayer's liability, an amended computation of the tax should be filed immediately.
The Commissioner will determine the correct tax liability after all information required by the Bureau has been submitted in final form.
571.11.3. Rate and Surtax Tables for Deaths Prior to January 1, 1970
The tax rates, surtax and exemption to be applied to any taxable event for inheritance tax purposes are determined as of the decedent's date of death. Thus with respect to the estate of a decedent dying in 1965, the tax rate to be applied to the distribution of a remainder due to the termination of a life estate in 1988 is determined with reference to the statute in effect in 1965.
The tables reproduced below illustrate the various tax rates, exemptions and surtaxes to be applied to current and future taxable events. In each instance, use the table corresponding to the date of death of the original decedent.
Tables appearing on pp. 204-206 have been omitted. See volume 4 of 2001 edition.
Caption Editorially Supplied
571.12. Appeal to Probate Court
If any executor, administrator, trustee, grantee, survivor or beneficiary wishes to appeal a determination of the Department of Revenue (other than a determination of value with respect to which appeal can be taken only to the Appellate Tax Board) (see 571.10, supra), he or she must, within one year after the payment of the tax, apply for an abatement by filing a petition in equity with the probate court having jurisdiction of the estate. (G.L. c. 65, § 7). Examples of determinations which may be appealed include erroneous determinations of a joint owner's fractional share of property, the failure of the Commissioner to allow a proper deduction for debts of an estate, or a determination that a transfer was made in contemplation of death without full consideration in money or money's worth.
571.13. Due Date of Tax on Present Interests
Transfers taxable under the inheritance tax are divided into two classes:
(1) present interests which come into possession immediately upon death such as outright legacies, life estates, and the interest of surviving joint tenants; and
(2) future interests which come into possession and enjoyment only after the termination of some prior present interest.
Deaths Prior to July 22, 1971. Taxes on present interests passing by will, intestate succession, inter vivos trusts, gifts and jointly held property are due fifteen months from the date of death. (G.L. c. 65, § 7).
Deaths on or after 7/22/71 through 12/31/75. Taxes on present interests are due 9 months from the date of death.
571.14. Due Date of the Tax on Future Interests
The tax on future interests is due:
(a) Deaths prior to 7/22/71. One year from the date the right to possession accrues. (G.L. c. 65, § 7).
(b) Deaths on or after 7/22/71 through 12/31/75. 6 months from the date the right to possession accrues. Id.
571.15. Postponement of Due Date of Tax
Disputed claims are sometimes filed which, if allowed, may make an estate not subject to tax. In such case, the due date of the tax may be postponed until the validity of the claim has been determined. (G.L. c. 65, § 7). This is done by filing a petition with the Probate Court. Before the petition is filed, however, two copies should be sent to the Estate Tax Unit for approval. The Estate Tax Unit will assent to the petition if the estate agrees to pay interest on any tax postponed. If the petition is allowed, a copy of the decree should be transmitted to the Estate Tax Unit.
571.16. Transfer and Removal of Inheritance Tax Lien
A taxpayer may wish to sell real estate before the inheritance tax becomes due. Real estate is, however, subject to a lien for the tax, and the lien must be removed in order to pass a clear title. There are three possible ways to remove the lien.
(1) The tax on the property to be sold may be computed and paid. The Estate Tax Unit will then issue a real estate certificate releasing the inheritance tax lien on the property;
(2) The estate may submit two copies of a petition asking that the lien be transferred to other real property owned by the estate. One copy of this petition should be filed with the Estate Tax Unit, the other with the Probate Court.
(3) The real estate may be conveyed under license of the Probate Court.
571.17. Tax Bills and Waivers
When the taxpayer has complied with all requirements, the Estate Tax Unit, after audit, will issue the tax bill on the estate. The Probate Court will not allow probate accounts on taxable estates until the tax receipt is filed with it.
571.18. Waivers on Real Estate Passing By Survivorship, Etc.
A surviving joint tenant or tenant by the entirety who has received any interest in real estate, or a taxpayer who has vested in possession and enjoyment of real estate after the death of the grantor, may have the Estate Tax Unit certify (Form L-8) that the real estate was not subject to tax, or if taxable, that the tax was paid. Form L-8 is to be filed with the appropriate Registry of Deeds.
Form L-8 will not issue unless the Estate Tax Unit has received:
(1) a petition;
(2) a copy of the will, if any;
(3) two copies of Form L-16;
(4) Form L-16A;
(5) a certified copy of the deed, land court certificate or other instrument creating the interest in the real estate; and
(6) the tax due, if any.
When an estate is not probated, the application for Form L-8 is made on Form L 53.
A surviving tenant by the entirety who has received an interest in real estate on which no tax is due because of the exemption in G.L. c. 65, § 6(c), third paragraph, can obtain a release of the inheritance tax lien on the property by filing two copies of Form L-8 with the Estate Tax Unit for approval. The following documents should be submitted with Form L-8.
(1) Estate not probated. Form L 53;
(2) Estate probated. Form L-16 (2 copies), Form L-16A, and the required probate papers;
(3) A certified copy of the deed, land court certificate or other instrument creating the tenancy by the entirety or the joint tenancy.
571.19. Exemptions From Tax
The following are exempt from inheritance and estate taxes: (G.L. c. 65, § 1).
(1) Transfers to or for the use of charitable, educational or religious societies which are organized under the laws of Massachusetts or some other state of the United States.
(2) Transfers for religious rites, rituals, services, or ceremonies, whether to be conducted in Massachusetts or elsewhere.
(3) Transfers to or in trust for charitable purposes.
(4) Transfers for the use of the Commonwealth of Massachusetts or any Massachusetts town.
If a decedent was not domiciled in Massachusetts at death, but was the owner of real estate or tangible personal property situated in Massachusetts, a report must be made to the Estate Tax Unit on Form L-14.
The Probate Court will not grant a license to sell real estate owned by a nonresident decedent nor permit the removal of assets from the state until the Estate Tax Unit has been notified. (G.L. c. 65, § 9).
Full information concerning the estate of a nonresident decedent must be included on Form L-14. If the estate is intestate, a court‑attested copy of the probate petition listing the heirs must be filed with the form. If the estate is testate, a court‑attested copy of the will must accompany the form and probate petition. If Massachusetts real estate is held by joint tenants or tenants by the entirety, a certified copy of the deed, land court certificate or other instrument creating the joint tenancy or tenancy by the entirety must also be filed.
Form L-14 must be entirely filled out, including Schedules D, E and F, any federal estate tax return figures, and any inheritance taxes paid to states other than Massachusetts.
The provisions of 571.4 (relating to the description and valuation of property included in the inventory) and the provisions of 571.6 (relating to nonprobate assets) are also applicable to Form L-14.
An itemized list of Massachusetts debts and expenses pertaining to the estate must be attached to Form L-14, Schedule F. As a general rule the only debts and expenses within Massachusetts deductible from the estate of a nonresident decedent are those incurred as costs of the Massachusetts ancillary probate proceedings. (See Form L-14, Schedule F, Item No. 2).
After the case is cleared with the Domicile Section of the Estate Tax Unit, the tax status of the estate will be determined and valuations, tax bills or waivers will issue.
If it is finally determined that Massachusetts inheritance or estate taxes have been overpaid, the overpayment is automatically refunded.
571.22. Estate Tax
In addition to the inheritance tax imposed by G.L. c. 65, G.L. c. 65A imposes an estate tax. See AP 571.22.1 et seq.
571.22.1. Resident Decedent
In the case of a resident decedent, this tax is the amount by which the credit allowed under section 2011 of the Federal Internal Revenue Code of 1954 exceeds the aggregate amount of all estate, inheritance, legacy and succession taxes actually paid to one or more states of the United States or to the District of Columbia in respect of property owned by the decedent or subject to tax taxes as a part of or in connection with his estate. (G.L. c. 65A, § 1). For example, if the federal credit allowed an estate under section 2011 was $5,000 and the Massachusetts Inheritance Tax paid was $4,000, a Massachusetts estate tax of $1,000 would also be due.
571.22.2. Nonresident Decedents Who are Residents of the United States
In the case of a decedent who died a resident of some other state or of the District of Columbia but owned real property or tangible personal property in Massachusetts, the estate tax is the excess of the credit allowable under section 2011 of the Federal Internal Revenue Code divided by the death taxes actually paid to other states. This is represented by the following fraction:
Value of real and tangible personal property in Massachusetts
Value of entire estate of decedent subject to the federal estate tax
571.22.3. Nonresidents of the United States
In the case of a decedent who was not a resident of any of the United States or of the District of Columbia at the time of his death, but owned any property located in Massachusetts, an estate tax is due. G.L. c. 65A, § 1. This tax is determined by multiplying the value of the taxable estate by the following fraction:
Value of all property in Massachusetts
Value of entire estate of decedent subject to federal estate tax
The following are all deemed located in Massachusetts if a decedent who was not a resident of the United States was their owner or creditor:
(a) securities negotiable by delivery which are physically present in Massachusetts at the time of their owner's death;
(b) stock issued by Massachusetts corporations, and debts owed by residents of Massachusetts or by Massachusetts corporations.
571.22.4. Due Date of Tax
Deaths Prior to 7/22/71. The inheritance tax is due eighteen months after death. G.L. c. 65A, § 2.
Deaths on or after 7/22/71 through 12/31/75. The inheritance tax is due twelve months after death.
After the passage of either due date, interest may be imposed on any balance remaining. G.L. c. 62C, § 32.
- Questions relating to procedures in the probate court should be referred to the Register of Probate. For resident decedent estates not requiring probate, see these Procedures, 571.7; for nonresident decedent estates, see these Procedures, 571.20.
572: SETTLEMENT OF FUTURE INTEREST TAXES
572.1. In General.
572.2. Simplified Settlement Method (SSP-2).
572.3. Actuarial Settlement Method (SSP-3).
572.3.1. General Approach.
572.3.2. Instructions for Completing Form SSP-3.
572.3.3. Computation Instructions.
572.3.4. Probability and Contingency Guidelines.
572.3.5. Force of Mortality Tables.
572.3.6. Settlement Tax Rate Table.
572.4. Other Methods.
572.1. In General
Under the Massachusetts inheritance tax, the holder (donee) of a power of appointment was not considered to have a property interest which would be taxable in his estate at his death, even if he held a general power of appointment. The donee was considered to be the agent of the donor in exercising the power, and the transfer of property to the beneficiaries pursuant to the exercise was a taxable event in the estate of the creator (donor) of the power.
When Massachusetts converted to an estate tax in 1976, the provisions of the 1975 Internal Revenue Code regarding general powers of appointment (IRC § 2041) were adopted for all decedents dying after 1975. Thus the donee of a general power of appointment created by a donor who died subject to the Massachusetts inheritance tax was in theory exposed to double taxation: the exercise of the power could be taxed in the donor's inheritance tax estate, while the possession of the power at the donee's death was includible in her Massachusetts gross estate pursuant to IRC § 2041.
The Massachusetts Legislature addressed this concern with the enactment of sections 83 and 97, Chapter 684 of the Acts of 1975. These statutes create a rule for excluding the general power of appointment from the inheritance tax estate of the donor and including the power in the Massachusetts gross estate of the donee (section 97). At the same time, an opportunity was provided to exclude the power of appointment from the Massachusetts gross estate of the donee if settlement of that future interest had been accomplished in the estate of the donor (section 83).
To facilitate the settlement of future interests pursuant to G.L. c. 65, § 14, the Estate Tax Unit has developed and implemented two special settlement procedures. Both of these procedures involve a determination of the current value of the trust corpus which is subject to the power of appointment, and then computing a tax pursuant to the provisions of the particular settlement procedure used. Once the Estate Tax Unit and the taxpayer agree on the amount of tax that will be accepted in settlement of this future liability, a bill issues for this amount. Once that amount has been paid by the taxpayer, a closing letter issues which confirms the settlement of this liability. Upon the death of the donee, the subject power is excluded from the donee's Massachusetts gross estate. Frequently the taxpayer will realize a tax advantage in settling the power of appointment prior to the donee's death, and this option should be investigated by any interested taxpayer to determine that advantage.
572.2. Simplified Settlement Method (SSP-2)
This method of settlement involves three basic steps:
1. Value trust corpus within 30 days of submission of settlement offer, using Trustee's Inventory (Form L-2) to itemize trust assets;
2. Complete Form L-28: Request for Assessment of Tax on Future Interests and Form L-28A: Computation of Offer of Settlement. Form L-28A contains other instructions for the processing of this Offer;
3. Execution of Form L-38B: Acceptance of Offer of Settlement, and return to Estate Tax Unit with payment of agreed settlement amount.
The rates of tax are shown on the L-28A, and this simplified procedure does not distinguish between classes of beneficiaries with respect to tax rates.
572.3. Actuarial Settlement Method (SSP-3)
This method of settlement provides for a credit for the current actuarial value of any previously taxed and active present interests. The balance of the trust corpus following reduction for these "present interest credits" is then taxed to the most likely recipients of the future interests as determined from the creating instrument. These present interests are valued using the 6% discount factors contained in part in 1975 Treas.Reg. § 20.2031-10(e), (f) and in the Actuarial Values Table-Factors at 6 Percent (see Appendix of this volume).
The rates of tax set out in the instructions for SSP-3 take into account beneficiary class, and reflect the actual rates of tax and surtax in effect at the death of the donor of the power of appointment.
The instructions for SSP-3 are provided in AP 572.3.2 and give detailed guidance as to the interpretation of the creating instrument and the relevant inheritance tax law.
572.3.1. General Approach
A. The tax is computed in the following manner:
1. Determine the current fair market value of the trust assets according to Treasury Regulations, §§ 20.2031-1 through 20.2031-6.
2. Determine the present value of the outstanding present interests (i.e., life estates, annuities, terms certain) using the actuarial tables and methods noted above.
3. Subtract the value of the present interests from the trust corpus to determine the taxable remainder.
4. Determine the identity of the remaindermen from the provisions of the controlling instrument, and allocate the appropriate shares of the remainder to the respective recipients so determined.
5. Compute the tax on each share using the rates shown in the Settlement Tax Tables in AP 572.3.6. These rates are not stepped progressively as in the application of the regular statutory rates. Instead, the total benefit allocated to a remainderman will determine the level at which the entire benefit is taxed.
B. The statutory exemptions otherwise available to the various classes of beneficiaries may NOT be taken.
C. Where the present value of a future interest to any one individual exceeds $500,000, the estate must compute the tax in the usual statutory manner, using the tax rate and surtax in effect on decedent's date of death. The tax rate to be applied will be no less than the rate in effect from June 27, 1933 through August 31, 1939, together with a 15% surtax.
D. This method contemplates only complete settlements of all future interests in an estate, and will not consider partial settlements.
E. Taxes on all present interests, including partial terminations and discretionary distributions, must be paid before an offer can be considered.
F. Submission of a computation by an estate will be considered an offer until it is accepted by the Department of Revenue. When the estate is notified that the offer has been accepted, the estate shall have 45 days to pay the agreed amount of tax. Failure to pay within 45 days will automatically revoke the acceptance, requiring submission of a new Offer of Settlement.
G. In cases where the subject trust was funded in whole or in part with life insurance proceeds or other assets which were not subject to inheritance tax at decedent's death, the nontaxable ratio so determined as to the present interests will be applied to the current trust value.
H. If the Estate Tax Unit declines to accept the Offer of Settlement, the Estate Tax Unit will issue a Notice of Intent to Deny Settlement, which will briefly state the reason for the proposed denial. The estate may confer with the Estate Tax Unit within 30 days of the date of the notice. Only one conference will be allowed. The determination following this conference will be final and nonappealable. If the estate does not request a conference, the denial will automatically become final 30 days after the date of the notice. Where a denial has become final, the estate may submit a new settlement offer.
572.3.2. Instructions for Completing Form SSP-3
This form must be prepared and executed by the Executor, Trustee or other fiduciary. It may be executed by all persons entitled to a future interest. See generally G.L. c. 65, §§14, 15A.
A detailed inventory of the personal property and real estate in issue must be submitted. Reference may be made to the Instructions for Form M-706 (Massachusetts Estate Tax Return) for assistance in preparing this inventory. Attach additional sheets if needed, and carry the appropriate totals to Items 1, 2 and 3 on Page 2.
Item 4: Briefly paraphrase the provisions of the instrument that created the future interests:
The decedent's will poured over into a family trust. The family trust created a marital deduction trust and a residue trust. The spouse was the life beneficiary of both trusts. On the spouse's death the spouse had a power of appointment over the marital trust and, if not exercised, then the marital trust merged into the residue trust for the benefit of children for life. Upon the death of the children, each child's share passes to issue of the child, if any, and if none to X University.
Item 5: Briefly state the events that have occurred or are most likely to occur with reference to the instrument creating the future interest. State the age and sex of each beneficiary. Refer to the probability guidelines contained in these instructions for bequests which are subject to contingencies.
(Using prior example in Item # 4 above.)
The spouse, age F 73, is in possession of the present interests. The probability of the spouse's exercise of the power of appointment is zero. The property will pass in beneficial enjoyment to the children, ages F 53, M 51 and F 48. The children have the following issue: F 53 has none; M 51 has 2; and, M 48 has 1. Based on the probability guidelines, the takers of the residue will be:
a) 1/3 to X University since F 53 has no issue;
b) 1/3 to the 2 children of M 51; and,
c) 1/3 to 2 children of M 48 since the guidelines provide that M 48 can still have 1 additional child.
Use this page to report any outstanding present interests or interim interests that have vested and on which taxes have not been paid. Taxes on all present and/or interim interests must be paid prior to consideration of the Settlement Offer. Check the appropriate boxes if there are no unpaid present interests or interim interests.
Item (A): Show the total inventory amount from Item 3, Page 2.
Item (B): Reasonable fees for the preparation of the Settlement Offer only will be allowed.
Item (C): The net inventory ("asset balance") will be the basis of the settlement computations.
Item (D): This schedule is used to compute the present value of the deductible present interests. Complete each column for each beneficiary of a present interest. Columns 1 through 4 are self‑explanatory.
Column 5: The Benefit Factor is an actuarial factor expressed as a five‑digit decimal. This factor can be a life estate derived from Table A(1) or A(2), or a term certain found in Table B (See 1975 Treas.Reg. § 2031-10 in the Appendix of this volume). Where the present interest is an annuity, the computed total annuity divided by the asset balance (Item C, above), carried to five decimal places, will be the benefit factor. This factor will be bracketed to indicate that it is an annuity.
Assume that the PRIOR ASSET BALANCE was $567,890; compute the BENEFIT FACTOR for an annuity of $8,000 per year, payable at the beginning of the year to a female age 54.
1.0600 for payments at beginning of year.
11.8436 annuity factor for female age 54.
Computation: 1.0600 x 11.8436 x $8,000 = $100,434
Benefit Factor (Bracketed): 100,434/567,890 = (.17685)
Column 6: The amount to be entered here will be the benefit factor (Column 5) multiplied by the asset balance [Item (D)(1)].
Item (D)(2)(1): This is the total of all of the present interests listed in Column 6.
Item (D)(2)(m): This is the balance after subtracting the total of present interests [Item (D)(2)(1)] from the asset balance [Item (D)(1) ]. This will be the amount subject to future interest taxes.
Item (E)(2): This schedule is used to compute the taxes on the future interests created by the instrument(s) in issue. Complete each column for each beneficiary of a future interest.
Column 1: If the name of the beneficiary is unknown (i.e., unborn), identify through the parent.
Column 4: Check the appropriate column. Unborn beneficiaries will be considered male.
Column 5: The benefit factor may be an actuarial factor (if the beneficiary receives an annuity, life estate or term certain) or it may be the decimal equivalent of the outright share received by the beneficiary. In either event, the factor shall be expressed as a five‑digit decimal.
Column 6: The benefit amount will always be the benefit factor (Column 5) times the Asset Balance [Item (E)(1)].
Column 7: Indicate each beneficiary's relationship to the decedent (Class A, B, C or D), determined with reference to G.L. c. 65, § 1.
Column 8: Select the tax rate factor from the Tax Tables in 572.2.6, based upon the entries in Columns 6 and 7, and decedent's date of death. Note: These tax rates are not progressively stepped as are the rates under G.L. c. 65, Section 1.
Column 9: Multiply the benefit amount (Column 6) by the tax rate factor (Column 8) and enter the result in Column 9.
Item (E)(2)(1): Enter the total of all future interest taxes from Column 9. Also, enter this total on line 4, page 1 of Form SSP-3:
572.3.3. Computation Instructions
A. Single life annuities, life estates, terms certain and remainders shall be valued in accordance with 1975 Federal Estate Tax Regulations, § 20.2031-10 and the Actuarial Values Table-Factors at 6 Percent (See Appendix of this volume). These regulations shall be controlling even though the death in issue may have occurred prior to 1971.
B. Computations involving two lives:
1. The estate shall use the following method to compute the actuarial value of a remainder following two lives (e.g., joint and survivor life estates):
a. determine the age difference between the joint life tenants;
b. determine the gender of the senior age (e.g., M-57, F-56); and,
c. refer to Table LT 6, in the Joint Life Factors at 6%, (See Appendix of this volume) which contains remainder factors following two lives of stated age and gender. Based on the above example (M-57, F-56) the table indicates a remainder factor of .24233.
2. The estate shall use the following method to compute the actuarial value of a remainder at the death of the first to die of two individuals:
a. add the remainder values from Table A of both individuals;
b. subtract the appropriate remainder factor obtained from Table LT 6; and,
c. the result is the actuarial value of the remainder at the death of the first to die.
3. The estate shall use the following method to compute the actuarial value of the secondary (survivor) life estate following the first to die:
a. determine the appropriate remainder factor from Table LT 6;
b. subtract the remainder factor so determined from 1.00000 to find the joint life estate factor; and,
c. subtract the life estate factor of either individual to determine a factor for the survivorship right of the other.
C. Computations involving more than two lives:
1. The estate shall use the following method to compute the actuarial value of a remainder following more than two lives:
Find the remainder factor following the joint life estates of M-42, F-46, F-50, M-50, M-56, F-63 and M-67.
a. segregate the males from the females, and rank order their ages;
b. obtain the "equal age" factors (m) of the males and females from Table MN included in these instructions:
Ages Female m Male m
M 42 .00434
F 46 .00366
F 50 .00518
M 50 .00966
M 56 .01620
F 63 .01525
M 67 .03953
c. add the values
of m: .02409 .06973
d. divide by the number of individuals in each gender group:
e. average force of m:
f. to determine the female equal age, refer to Table MN to find the value of .00803 in years. It falls between F55 (.00760) and F56 (.00814); since .00803 is nearer .00814, the female equal age is F56;
g. follow the same process for the group of males; the equal age factor of the males (.01743) is nearest to .01751, or age M57; and,
h. value the remainder interests as if only two lives (M57, F56) are involved, referring to (B)(1), above.
2. Where the share in the asset balance passes to the issue of a life tenant at the latter's death, the present value of the share so passing shall be the aggregate life factor divided by the number of life tenants. In the example in (C)(1), above, the remainder after M57, F56 is .24233; the life estate factor is .75767. Since there are seven life tenants, it will be assumed that the share passing to the issue of a deceased life tenant will be .75767 ÷ 7, or .10824.
3. To determine the value of one of several joint life estates, the fraction created by 1 over the number of individuals in the class will represent the respective individual's interest in the whole. In the above example, the aggregate life estate factor is .75767; the class has 7 members, thus each life estate will be considered to represent .10824 of the asset balance. This method may be used only where the class of life tenants has more than two members.
572.3.4. Probability and Contingency Guidelines
A. Probability of survival:
1. Where it is necessary to compute the probability of an individual surviving as a condition to the occurrence of a stated contingency, Table LN contained in 1975 Treas. Reg. 20.2031-10(f) (See Appendix) must be used to calculate the likelihood of this occurrence.
2. Where the probability of survival is 5% or greater, it will be assumed that the individual will survive.
3. Example: compute the probability that M67 will survive for 21 years.
From Table LN: factor M67 = 59631
factor M88 = 7332.7
Probability of survival = 7332.7 ÷ 59631 = 12.296%
Survival to age 88 will be assumed.
B. Probability of remarriage (applied only where instrument contains the condition):
1. Remarriage factor will be applied without regard to the gender of the person in issue, at the person's age at the time of the offer of settlement.
2. To the extent that the remarriage factor applies, the contingency upon such remarriage will be deemed to take effect at the time of the offer of settlement.
3. To the extent that the remarriage factor does not apply, the offer of settlement will be computed as if remarriage will not occur.
Age Of Individual Applies Does Not Apply
under 40 years 100% -0-
40 through 49 years 50% 50%
50 through 59 years 25% 75%
60 years and older -0- 100%
C. Probability of exercise of appointment:
1. To the extent that the power is deemed to be exercised according to the percentages indicated in (5), below, the property subject to the power will be considered to pass to one Class C beneficiary of the same age as the donee, but of the opposite sex.
2. To the extent that the power is deemed not exercised, the power will be considered to have lapsed, and conditions contingent upon such lapse, or default of exercise, will apply.
3. If the donee has a power exercisable during life, it will be assumed that the power was exercised, to the extent applicable, immediately at the donee's current age.
4. If the donee has only a testamentary power, then the donee's current age will be increased by the following increments before referring to the table in (5), below:
Under 40 years of age, add 20 years
40 through 49 years, add 15 years
50 through 59 years, add 10 years
Over 60 years, add 5 years
5. Probability of exercise:
Power of Appointment Deemed
Age of Donee Exercised Not Exercised
Under 40 years 100% -0-
40 through 49 years 75% 25%
50 through 59 years 50% 50%
60 through 69 years 25% 75%
70 years and older -0- 100%
D. Probability of additional issue:
1. Unless the following "probability of issue" provisions apply, a class of issue will be considered closed when:
a. there are members of the class in being, and the youngest member is currently age 20 years or older; OR
b. there are no members of the class in existence, so that it will be assumed that no members of the class will ever exist.
2. An individual of either sex will be considered capable of having additional issue through age 50.
3. Where there is such a presumption of additional issue, the number of issue, regardless of age under 50 of the parent, will be limited to one, and the unborn will be considered to be a one year old male.
E. The probability factors discussed above will not apply in those cases where it is obvious from the facts and circumstances that the probability of the occurrence of the contingency is remote if not nonexistent.
572.3.5. Force of Mortality Tables
[Table omitted – see pp. 220-221.]
572.3.6. Settlement Tax Rate Table
DATES OF DEATH
[Table omitted – see pp. 221-222.]
572.4. Other Methods
Where an estate can demonstrate that these settlement methods should not be applied due to hardship or other unique facts, a special offer of settlement may be made.