Rhode Island Estate Planning: Small State with Big Planning NeedsRhode Island families face unique estate planning challenges, even though the state is
Apr 4, 2024
Rhode Island Estate Planning: Small State with Big Planning Needs
Rhode Island families face unique estate planning challenges, even though the state is geographically small. The combination of high property values, complex tax rules, and family business considerations means that thoughtful planning is essential for many residents.
Rhode Island Estate Tax Reality
2025 threshold: $1.774 million
Tax rate: Progressive rates up to 16%
Real impact: The relatively low exemption means that many middle-class families—especially those with real estate or business interests—may be subject to state estate tax.
Caveat: Rhode Island’s estate tax exemption is not portable between spouses. This means that if one spouse dies and does not use their exemption, it cannot be transferred to the surviving spouse. This is different from the federal estate tax system, where portability is allowed. Also, the exemption amount is subject to change each year, so it’s important to check the current threshold when planning.
Small State, Big Challenges
High property values: Coastal and urban properties can easily push an estate’s value above the exemption threshold, even for families who do not consider themselves wealthy.
Interstate complications: Many Rhode Island residents own property in neighboring states like Massachusetts or Connecticut. Each state has its own probate and tax rules, which can complicate estate administration and tax liability.
Family business succession: Rhode Island has a strong tradition of family-owned businesses. Without careful planning, these businesses can face liquidity issues or forced sales to pay estate taxes.
Rhode Island-Specific Planning Strategies
Revocable living trusts: These can help families avoid probate, maintain privacy, and potentially reduce estate tax exposure. However, trusts must be properly funded and maintained to be effective.
Marital deduction planning: While Rhode Island does not allow exemption portability, married couples can use credit shelter trusts or other techniques to maximize both spouses’ exemptions and minimize estate tax.
Business succession planning: Early planning is key to protecting family businesses. This may involve buy-sell agreements, life insurance, or gifting strategies to ensure a smooth transition and minimize tax burdens.
Caveat: Estate planning is not one-size-fits-all. The right approach depends on your family’s assets, goals, and unique circumstances. Federal estate tax rules are separate from Rhode Island’s, and both may apply to larger estates. Regular reviews are important, especially if your family situation or the law changes.
Despite its small size, Rhode Island’s estate planning landscape is surprisingly intricate. Proactive, informed planning can help families preserve wealth, avoid unnecessary taxes, and ensure their wishes are honored.
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Disclaimer: This blog post provides general information for educational purposes only. It is not legal advice. Estate planning outcomes can vary widely based on your personal circumstances and the evidence available. Always review your situation carefully and stay updated on current laws.