Is Massachusetts’ Estate Tax Driving Away Wealthy Residents?

“You can make it! Make it in Massachusetts!”

For many Massholes over age 60, this peppy, ubiquitous 1980s promotional jingle created by the state is an earworm that just won’t die. But given the moribund status of efforts to rein in our estate tax—one of the most punishing in the country—it needs to be updated:

“You can make it in Massachusetts! Just don’t croak here if you do!”

The estate tax is a levy that only 12 states and the District of Columbia impose on wealth that’s already been subject to income, sales, capital gains, real estate, and other taxes. And it’s an underpublicized factor driving an ongoing exodus from Massachusetts that Boston University researchers found has exploded by 1,100 percent since 2013. Some fear this migration could deprive the state of taxable wealth and job creators, allowing other states to feast on the seed corn we need for future economic growth.

Three years ago, Massachusetts was tied with Oregon for the nation’s lowest threshold for estate taxes to kick in, at just $1 million, including a “cliff effect” that extended the tax to the entire value of the estate if it exceeded a million. In 2023, as part of her tax-cut package, Governor Maura Healey proposed a $3 million exemption; the legislature settled on $2 million and elimination of the cliff effect. Still, only Oregon and Rhode Island offer lower exemptions, while only Hawaii and Washington State impose higher rates—a cap of 20 percent versus Massachusetts’ 16 percent—making us the third-worst in the nation. “That was supposed to be a down payment,” says Jon Hurst, head of the Retailers Association of Massachusetts, who wants to see the exemption set at $5 million. “Where is the next payment? It’s very important that we incentivize our newly retired taxpayers and residents to stay in Massachusetts when they can easily move over the border to New Hampshire or down to Florida,” states with no estate tax.

You say you’re dry-eyed about the concerns of millionaires? You don’t have to be Uncle Pennybags from the Monopoly game to get whacked by the estate tax. The median single-family home price in Greater Boston just passed $1 million, putting the $2 million threshold within easy reach of the decidedly non-super-rich with income from a small business or a lifetime of wise investment.

In fact, that’s who currently pays most of the estate tax. The most recent state figures show 49 percent of the estate tax returns in 2020 were from estates with a gross value between $1 million and $2 million. Another 20 percent came from the $2 million to $3 million range. And the bite is a big one. “If a single taxpayer dies with a $3 million estate, they’d be looking at an estate tax of [more than] $82,000,” says Greg O’Brien, cofounder and co-CEO of Boston-based Anomaly CPA. “Given current asset values, this may happen more frequently than people think.”

Is it enough to send more people heading for the exits in hopes of keeping more of their hard-earned dough in the family? While the pro-tax Massachusetts Budget & Policy Center noted in a recent report that “taxes are not a driving factor for most individuals choosing to relocate,” just look at the numbers: In the fiscal year ending June 30, 2024, the state collected 24 percent less than projected from the estate tax, a shortfall that could signal departures or simply reflect the volatile nature of estate tax collections. A 2023 survey given to members of the Massachusetts Society of CPAs on outmigration trends, meanwhile, tells an ever starker story: 82 percent said clients were talking about leaving, with 61 percent citing tax policy as “the primary reason” and another 39 percent calling it “a consideration.” Not a single respondent said taxes weren’t a factor. And the exodus extends beyond estate planning. According to a 2024 SmartAsset report of IRS data from 2021 to 2022—before passage of the controversial millionaires’ tax and recent estate tax changes—Massachusetts ranked fourth among states losing the most households with adjusted gross incomes of $200,000 or more. Only California, New York, and Illinois fared worse. The average income of those fleeing Massachusetts? Nearly $991,000.

This exodus doesn’t just take a toll on state revenues; it also has a negative impact on charities, cultural organizations, and other nonprofits, most of which rely on individual donations, according to Jim Klocke, CEO of the 700-member Massachusetts Nonprofit Network. Estate tax implications, he says, “can have a big effect on timing of giving, levels of giving.”

There are other reasons to be concerned about an estate-tax-driven exodus. As Zach Donah, president of the Massachusetts Society of CPAs, says, “States are aggressive; they use our tax policy system as a reason to persuade businesses to relocate.” He cites anecdotal reports that officials in Georgia, Tennessee, and Pennsylvania have been warning of the Massachusetts estate tax in some of their pitches to lure companies.

To Doug Howgate, head of the business-backed Massachusetts Taxpayers Foundation, the problem is that the exorbitant estate tax makes us “an outlier among outliers…. Our estate tax is out of line with Connecticut, New York, and Maine. We want people to continue to build their wealth here…. The move from a $1 million to $2 million threshold was a positive step, but we need to make sure that wasn’t the end of the conversation.”

Even a progressive political figure like Healey sees the merit in a deeper estate tax cut. “I made my position clear on the estate tax; Massachusetts is an outlier,” she said in a recent interview. “I do not like us being an outlier. The legislature went a certain distance, not as far as I wanted them to go the last round.” Yet there’s a significant caveat to Healey’s position. With the Trump administration putting the squeeze on federal funding, she has more urgent fiscal issues on her mind. “We’ve got to get through this budget right now,” the governor said, “and I’m going to continue to stay focused on just general economic policy.”

Translation: Further estate tax cuts are dead on arrival for now. How long that lasts may signal something bigger—whether Massachusetts’ old “Taxachusetts” reputation is making an unwelcome comeback after being left for dead. And while the millionaires’ tax is generating much-needed revenue for now, estate tax reform remains critical: After all, if the state’s taxes on the wealthy keep driving them away, there may not be anyone left to pay either the estate tax or the millionaires’ tax.

Estate taxes are nothing new: The federal government has had one since 1916. But as usual, Massachusetts was a trailblazer, introducing an inheritance tax (paid by beneficiaries) in 1891 before creating its own estate tax (paid by the estate of the deceased) in 1916 alongside the federal version.

In modern times, as anti-tax sentiment has curbed other sources of revenue, Massachusetts is leaning more heavily on its estate tax. With property values mushrooming, estate tax revenue grew by 158 percent between 2017 and 2023, according to a Pioneer Institute analysis; by the fourth quarter of 2022, only New York and Washington were collecting more estate tax revenue than Massachusetts.

While there are plenty of residents who may be exposed to estate taxes—more than 80,000 in the most recently available IRS data from 2022—“ignorance is bliss for a lot of people,” reports O’Brien, of Anomaly CPA. “They hate thinking about estate taxes or planning because it’s the end. People don’t want to think about it.”

But lots of others are well aware of what it means to die here. In the 2023 Massachusetts Society of CPAs member survey, 8 in 10 accountants said they had clients who were considering leaving the state within the year; by the time a 2025 survey was administered, 70 percent of the accountants reported at least one of their clients actually had relocated, an eyebrow-raising number given how difficult that process can be. One firm gives customers interested in relocating a daunting checklist detailing a dozen actions they need to take to legally change their domicile. Among them: canceling all Massachusetts bank accounts and selling all property here, changing membership in churches and clubs, even finding a new doctor and dentist. “Be aware that the Department of Revenue will often use credit card and bank records to establish days spent in Massachusetts, as well as airline records for travel,” it warns.

There’s a reason for that: The state is playing for keeps. Consider the cautionary tale of Craig Welch, currently causing a stir in CPA circles. In 2003, Welch founded AcadiaSoft, a South Shore company that develops and markets integrated risk management services for investment firms. In 2015, he moved to estate-tax-free New Hampshire and cashed out, selling his shares in the company for a cool $4,744,760. That same year, his Massachusetts tax filing excluded the proceeds from the sale as “income not sourced to Massachusetts,” according to court records.

Nice try, ruled state tax officials, but you made it in Massachusetts, and now owe $335,969 in taxes, penalties, and interest. Welch appealed, and the Appellate Tax Board sided with the state. “This decision reinforces the broad reach of Massachusetts’ sourcing rules for income derived from activities within the Commonwealth, even when the income is realized after the taxpayer has become a nonresident,” wrote CPA Ed Zollars in an online post analyzing the decision. Moral of the story: You can make it in Massachusetts, all right. But whether you’re living or dead, resident or not, the state is going to take its cut.

There’s also a political lesson in the Welch saga, the legislative compromise on estate tax reform that disappointed tax-cut advocates, and Healey’s current mañana wait-and-see messaging on further reductions: The opposition has the upper hand for now. “The richest one percent just got a trillion in tax cuts from the federal government; over $3 billion in tax cuts for the top one percent in Massachusetts,” says Andrew Farnitano, spokesman for the union-based coalition Raise Up Massachusetts, which spearheaded the millionaires’ tax campaign. “The wealthiest families in Massachusetts are doing just fine. We need more support from government, not less. We are never going to win a race to the bottom.”

Others believe the state needs more time to determine what to do next about estate taxes. “I can’t imagine why you would want to make further changes” to the estate tax, says Evan Horowitz of the Tufts Center for State Policy Analysis, a politically neutral observer, until the state is able to offer “credible analysis” of estate tax impact on revenues—a finding he believes will require 10 to 15 years of data collection. “The state is struggling to raise enough money to pay for its programs. Is that a framework where you want to cut revenue? No,” he says, describing the estate tax as “proper insurance against dynastic wealth.”

It’s not as though the wealthy don’t already have options. A blockbuster 2021 report by ProPublica based on leaked IRS records found that more than half of the 100 richest Americans exploit loopholes such as the grantor retained annuity trust (or GRAT) to avoid estate taxes, including cosmetics heir Leonard Lauder, Blackstone private equity kingpin Stephen Schwarzman, Laurene Powell Jobs (widow of Steve), and Medford’s own Michael Bloomberg. ProPublica couldn’t put a number on the revenue lost to this and other dodges, which can reduce both federal and state estate tax liability—but it’s certainly a nice GRATuity for the mega-rich.

Even less-endowed taxpayers have workarounds available to them, including splitting assets between spouses so they each retain their $2 million exemption, downsizing an estate through gifting, and life insurance trusts that keep the value of policies separate from the estate. “The estate tax is optional if you are willing to plan and work with tax and estate advisers early on,” O’Brien says. “I would suspect the ultra-high-net-worth are all set here, but those in the middle get caught off-guard and are not as versed or educated in Massachusetts estate law.”

It’s basic Massachusetts political math: an underinformed public squeamish about the topic plus the bad optics of seeking tax breaks for asset-rich families equals a weak hand. In an environment where the pro-tax and anti-tax camps can’t even agree on basic facts about tax policy’s impact on flight from Massachusetts, the estate-tax-reform debate will likely remain deadlocked for the foreseeable future.

If anything, there’s more tax-hiking pressure in the pipeline. Next up: a move by the folks who brought you the millionaires’ tax to boost the tax rate on global corporation profits stashed offshore from 5 percent to 50 percent.

In this climate, with the unions and their allies on a roll and Trumponomics as an easy foil, who would bet against them, or wager on the estate tax being further loosened? But that same climate is creating a bumper crop of reasons for residents here to invest and seek opportunities elsewhere. “We are not going to be competing with states with zeroed-out taxes” like Texas, New Hampshire, or Florida, notes Howgate of the Taxpayers Foundation.

And a year’s worth of effort by Governor Healey for our estate tax to remain one of the most burdensome in the nation? That still doesn’t accomplish Howgate’s modest ask: “Make sure our tax code is not outdated and makes sense.”