Using Trusts to Reduce Estate Taxes for Wealthy Couples in Massachusetts
Estate planning for wealthy couples in Massachusetts requires careful consideration of both federal and state laws. The right strategy not only preserves wealth for future generations but also provides peace of mind, knowing that your legacy is protected. Working with an experienced estate planning attorney and financial advisor is critical to tailoring a plan that meets your family’s unique needs. This article focuses on the use of estate tax sensitive trusts to reduce, and sometimes even eliminate, federal and state estate taxes for wealthy couples in Massachusetts.
Federal estate taxes are ugly. They apply when a person’s estate exceeds $13.99m (2025) or $27.98m (2025) for married couples. The tax rate is 40% (2025). Fortunately, not many families have assets that exceed these amounts, so very few find themselves subject to this tax.
State estate taxes are not quite as ugly but apply to many more families in Massachusetts. MA estate taxes apply when a person’s estate exceeds $2m (2025), or $4m (2025) for married couples. The top tax rate is 16% (2025).
Cape Cod, Massachusetts
A family who expects their estate (including life insurance proceeds unless an ILIT is used) to exceed $2m (2025) is usually advised by estate planning attorneys to include estate tax sensitive trusts as part of their estate plan. This is commonly referred to as ABC trusts.
When the first spouse passes, their assets are typically distributed among the ABC trusts in the following manner:
The B Trust: Up to state exemption amount or $2m (2025).
The C Trust: Remainder of federal exemption, up to $11.99m (2025).
The A Trust: Anything above the federal exemption amount.
There are quite a few specific details that are unique to each trust. These include:
The B Trust:
Other names for the B trust include family, bypass or credit shelter trust.
Usually funded up to the state’s exemption amount, $2m (2025).
Uses the decedent’s federal (some or all) and state (all) exemption amounts to avoid owing federal or state estate taxes.
Funded amounts are excluded from the surviving spouse’s estate when the surviving spouse passes.
Not entitled to a step-up in cost basis when surviving spouse passes.
Usually set up as an irrevocable trust with a new EIN.
Fiduciary (1041) tax filing is required annually.
The C Trust:
Other names for the C trust include marital or QTIP trust.
Federal estate tax exposure:
Usually funded using the decedent’s remaining (after subtracting amount funded in the B trust) federal exemption amount, up to $11.99m ($13.99m-$2m).
Therefore, assets are excluded from the surviving spouse’s FEDERAL estate when the surviving spouse passes, and the assets are not entitled to a step-up in cost basis for federal income tax purposes.
State estate tax exposure:
Since the state exemption amount was entirely used up in the B trust these assets are subject to state estate taxes when the first spouse passes. However, there is a rule that excludes them from the decedent’s estate and subject to state estate taxes if/when you leave the assets to your spouse. This is referred to as the unlimited marital deduction.
To take advantage of the unlimited marital deduction within the C trust the executor of the decedent’s estate must make a state QTIP election. In exchange for excluding the assets from the decedent’s estate, the surviving spouse must include the assets in the surviving spouse’s estate when they pass, at which time they will be subject to state estate taxes (if the value exceeds the surviving spouses state exemption). This allows the family to delay (and sometimes eliminate) state estate taxes.
Since the assets are included in the surviving spouse’s estate when they pass, the assets should be entitled to a step-up in cost basis for state income tax purposes (although I’ve never seen this done).
Usually set up as an irrevocable trust with a new EIN.
Fiduciary (1041) tax filing is required annually.
The A Trust:
Other names include survivors’ trust.
Any assets that exceeded what could be added to the B and C trusts are added to the A trust. In 2025, this means any assets that exceed $13.99m.
This trust is typically revocable and fully accessible to the surviving spouse and typically uses the surviving spouse’s social security number as an identifier.
Benefit from the unlimited marital deduction.
Assets are included in the surviving spouse’s estate when they pass and are potentially subject to federal and state estate taxes and are also entitled to a step-up in cost basis for both federal and state income tax purposes.
Boston, Massachuetts
Let’s look at an example:
Jim and Trudy live in Amesbury, Massachusetts. Jim passed away in December 2024. The value of his assets/estate totaled $20m. Their attorney previously put together the ABC trust structure within their estate plan. Within nine months of Jim’s passing, his estate was distributed (with the help of his attorney) to the ABC trusts as follows:
The B Trust: $2m
The C Trust: $11.99m
The A Trust: $6.01m
This strategy helped Jim use both his federal and state exemptions and reduced the amount of assets that Trudy will need to include in her estate when she passes. The B trust would be entirely excluded from Trudy’s estate. The C trust is excluded from Trudy’s federal estate but included in her state estate. The A trust is included in both her federal and state estate.
Potential estate tax savings are $5.59m federal ($13.99m * 40% tax rate) and $320K state ($2m * 16% tax rate).
Most states do not have an estate tax. Massachusetts does. Therefore, the ABC trust structure is still a very common strategy used by Massachusetts estate attorneys to help reduce, or eliminate, estate tax exposure at both the federal and state levels. Estate taxes can substantially reduce the size of the estate that you leave your loved ones. Be proactive and make sure that your plan addresses estate taxes if you happen to be fortunate enough to have the resources that make you a wealthy couple in Massachusetts.
Our firm is a registered investment advisory firm. This means we are a fiduciary. We are not lawyers and cannot give legal advice, but we can point you in the right direction to get these needs identified and addressed.