Estate Tax News – There’s lots of talk about millionaires leaving Massachusetts. But will they?

Boston Globe with reaction from Massachusetts residents on the current tax climate. Although not the primary topic of discussion, the Massachusetts estate tax is invoked throughout the piece.

On a weekend morning last month, a recently retired CEO met some friends for brunch in a Back Bay condo tower. Everyone there had enjoyed long careers in investing, medicine, and other ventures in Boston. Now, contemplating their golden years, they began to discuss what would come next. Over lox, bagels, and a commanding view of the city below, the conversation eventually turned to — what else? — the “millionaires tax.”

One of the friends was grousing about the newly passed ballot initiative, which places an extra 4 percent tax on incomes of over $1 million. That led to chatter about the estate tax, and how much of their money Massachusetts would claim when they die. One couple had established residency in Florida, the executive recalled. Another was considering it. It seemed the question on everyone’s mind was whether to stay in the state where they’d lived and prospered so long.

“People at this age bracket start thinking, ‘Should I cash out and move?’ Which is all pretty normal,” said the executive, who asked for anonymity so as not to betray the confidence of his friends. “But the tax thing really accelerates the conversation.”

When voters passed the millionaires tax last fall, it was hailed by progressives as a win for middle- and lower-class residents. It could raise $1 billion or more a year for schools, roads, and transit by taxing fewer than 1 percent of people in the state. But now, some of that 1 percent are assessing their options. They may not speak openly about it, but among the well-heeled, there’s a simmering sense that the state has become less welcoming.

“People are angry. They feel like they’ve done a lot for Massachusetts and they’re not being rewarded and respected for what they’ve done,” said Brandon Fink, a wealth adviser with Claro Advisors and spokesman for the Boston Estate Planning Council.

Sue Hawkes, a veteran marketer of luxury condos, put it another way: “There’s just this lack of friendly behavior toward businesses and wealthy people.”

Let’s be clear: Massachusetts has been a boon for many of these millionaires, who have tapped into the state’s ample resources — especially its concentration of brain power and innovative spirit — to help grow their fortunes. And many of this 1 percent have been generous in return, helming many of the region’s charitable endeavors. But critics say Massachusetts has the nation’s most onerous estate laws. Short-term capital gains taxes are relatively high here, too.

Just throw the millionaires tax onto the growing list of grievances.

For years, state officials have worked to slough off the noxious label “Taxachusetts.” Now some fear it will return, and at a precarious time for the state’s economy. Massachusetts has seen an outflow of residents since COVID-19 began and remote work has loosened geographic ties for many white-collar workers.

It’s hard to say whether a meaningful exodus is underway — driver’s license data from Florida, for example, do not yet indicate a significant uptick in relocations from Massachusetts this year compared to 2022, after the millionaires tax took effect on Jan. 1. But the tax is new, and many say a moneyed migration could be nigh. A recent survey by the Massachusetts Society of CPAs found that more than 80 percent have at least some clients thinking of leaving; most cited the millionaires tax as a reason.

Then there’s something harder to quantify, almost a feeling: the tone of the debate in which they feel singled out. Even the name of the surcharge itself stings.

Despite proponents calling last fall’s ballot campaign the “Fair Share Amendment,” it’s hard to dispute that the name “millionaires tax” has stuck. And in buttoned-up Massachusetts — where boasting about money, or even identifying as wealthy, is still verboten in some circles — either moniker can feel like an insult.

“There are a lot of people who are understated” about their wealth, Fink said. “They’re not flashy, and more humble. They do feel like they’re being attacked in a sense.”

To proponents of the tax, these are precious concerns. Raise Up Massachusetts, the union-backed coalition that pursued the measure for nearly a decade, says only a fraction of people here will pay the tax, and even fewer will leave because of it. Raise Up spokesman Steve Crawford said that other states with similar taxes have seen only a small number of millionaires move to avoid paying the higher rates.

“The truth is, when someone is that rich, they can afford to live wherever they want and let their accountant worry about how much they owe,” he said.

Indeed, just last week, the left-leaning Mass Budget and Policy Center released a study showing that, in the 2010s, Massachusetts had one of the lowest rates of outmigration in the country among households earning $200,000 or more. State tax rates, they argued, have far less to do with where wealthy people choose to live than other factors like education and economic opportunity.

But taxes, and their impact on the state’s economy, have become a major issue on Beacon Hill. In February, Governor Maura Healey filed a proposal that would bring the estate tax and capital gains tax more in line with other states. House Speaker Ronald Mariano, too, has said he wants to make Massachusetts more competitive and is readying his own tax proposal. And economic development secretary Yvonne Hao, at a legislative hearing last month, noted Massachusetts is set to fall from 34th to 46th on state rankings of economic competitiveness by the pro-business Tax Foundation, now that the millionaires tax is in place.

Hao, in a subsequent interview, said she is hearing from a number of her former colleagues in the startup world about the millionaires tax, and how the state’s tax climate could prompt them to move.

“Hopefully, people see the signals from the administration in our tax policies that [show] we’re trying our best to stay competitive,” Hao said.

Healey’s move irks some in the state’s progressive wing. The newly elected Democratic governor is going too far to accommodate wealthy residents, they contend. The investments funded by these taxes, they say, will fuel the state’s economy.

“What brings people to Massachusetts? What [are] our strengths?” said Representative Erika Uyterhoeven at a separate legislative hearing last month held to discuss Healey’s tax plan. “It’s a functioning transportation system. It’s healthy public schools. It’s having affordable living situations.”

Still, there are signs that high earners are looking to Florida and New Hampshire for relief. The two income-tax-free states saw a flood of in-migration from Massachusetts during the pandemic, and many expect that trend to accelerate. Waltham-based Lamacchia Realty set up an office in Fort Lauderdale in 2020 because “we wanted to take advantage of the migration that’s always been there,” said associate broker Jim Major. That seems like a prescient move now.

The tax, Majorsaid, “is just going to help push people more in that direction.”

Drew Josephson and Andrew Ventura, Compass real estate agents who dub themselves “relocation specialists” in Naples, Fla., say they’ve seen an uptick in interest from Massachusetts residents in the past few months.

“I have one client who is looking simply because of the millionaires tax in Massachusetts,” Ventura said. “An extra 4 percent on their income pays for a house in Naples.”

Of course, for the moment this is mostly talk, and tales have a way of spreading. One bit of gossip that ricocheted through Boston business groups this winter went like this: A Massachusetts resident went to apply for a driver’s license in Florida, and someone at the motor vehicles office asked, essentially: What’s going on up in Massachusetts? You’re the fifth person we’ve seen today from there. (The exact number varies in the telling.)

Still, Matthew Dyment, office managing principal at accounting giant BDO’s Boston office, said his phone was ringing off the hook after the vote in November.

“Clients [were] saying, ‘That’s it. That’s enough to push me out the door,’” Dyment recalled.

Some have already made the move. Real estate developer Jim Rappaport said the millionaires tax — along with a “little thing called the weather” — helped prompt his move to Florida. Rappaport, a former state GOP party chairman and former candidate for lieutenant governor, said he decamped to Florida in 2020 in part because the writing was on the wall: He knew the millionaires tax would eventually reach the ballot. And he knows at least 40 couples who have moved to the Sunshine State for similar reasons.

“I’ll be a Boston sports fan until the day I die,” Rappaport said. “That doesn’t mean I’m going to put up with the constant strain that they keep putting on us.”

Lucas Noble is just waiting for the right time to make the move: when his 10-year-old daughter graduates from high school. Then, he and his wife will establish residency in Florida, where the financial planner opened up an office in 2019. The weather is a big factor, he said, as is the lack of income or estate taxes.

“Living six months and a day in Florida is a no brainer,” Noble said. “We advise people to do that.”

The income-tax-free haven to the north is attractive too. Mark Dickinson, a real estate investor on the South Shore, said he just scooped up 23 acres in Gilford, N.H., to build a retirement home. He and his wife plan to move as soon as next year.

“The inheritance tax is something I worry about for my wife and my kids,” Dickinson said. “I’m a real life example of someone [who has] taken the step.”

New Hampshire Governor Chris Sununu is hoping many more will follow. He was taking shots at Massachusetts this past week at a New England Council meeting. “What the hell are you all thinking?” Sununu quipped to the Massachusetts residents in the crowd. “I’m giving Maura Healey the ‘Customer Service Award’ for New Hampshire because of the insanity that’s going on in Massachusetts.”

For some people, the tax is affecting business decisions, even if it isn’t prompting them to literally pack their bags. John Hajjar, real estate investor who lives in Milton, has no plans to leave. But he also won’t buy any additional properties in the state, now that the millionaires tax is law.

“I will not deploy another nickel in this state,” Hajjar said. “The fat cats on Beacon Hill are telling me, ‘You’re not welcome here anymore.’ I do so much. I’m a productive member of society. When I’m told I’m not welcome, it’s a punch in the gut.”

The accountants and their wealthy clients alike are quick to point out that when someone leaves Massachusetts, they often take all their potential tax payments with them, not just the 4 percent. Their charitable donations are likely going to dry up, too. And already, they’ve begun devising tax strategies to avoid the payments, encouraging couples to file separately on their state taxes, for one.

Jeff Levine, an accountant in Newton, said at least 10 of his clients are considering a true move or at least looking to redomicile — that is, to change their residency for more than half the year. He’s been coaching them on things to consider such as where they spend most of their time, and switching over their driver’s licenses, voting registration, and medical insurance. They should also pay attention to whether their cellphone is pinging towers elsewhere often enough to make any auditors happy.

“You have to move doctors, you have to move the nice china,” said Fink, the estate planner. And don’t forget the art and the family photos. Fink said he knows one wealthy client who had to pay back-taxes when auditors found that they had failed to switch the veterinarian for their pet.

Still, those clients calling Dyment after the millionaires tax passed ultimately expressed an unwillingness to break the ties with Massachusetts necessary for a domicile change, such as selling a primary residence.

“When you actually spend time sitting down with them and explaining what they need to do to break domicile, they don’t want to do it or they may want to do it but their spouse is typically against it,” he said.

That’s a big reason why at this point, the talk is mostly just that: talk. The nitty gritty details of uprooting your life to save a few percentage points on your state taxes is a lot more complicated than griping with your friends.

But clearly people are talking.

Evan Horowitz, the executive director for the Center for State Policy Analysis at Tufts, has been tracking the law’s implementation and knew to account for some degree of tax avoidance. He said he’s surprised at just how much chatter he’s hearing about people wanting to leave.

“A lot of it is gossip and it’s too early to have hard data,” he said. “But the gossip is super interesting and revealing in some way.”

This post is a part of Old Colony Law’s Estate Tax Updates.