Rhode Island Estate Tax Update
Rhode Island, previously among the most unfriendly estate tax regimes in the country, has now increased its exemption amount to $1.5 million with the passage of the 2015 fiscal year budget bill. The new estate tax threshold will be applicable to persons dying on or after January 1, 2015. The figure will continue to be adjusted for inflation each year just as it has been in the past.
This is significant from an estate planning standpoint, as couples were previously forced to consider tax planning even when their estates had not reached the one million dollar mark. On the federal level, the estate tax exemption is considerably higher–$5.34 million in 2014; and likely to go up slightly next year. So while a federal estate tax might be unlikely for many families, a Rhode Island estate tax still looms, albeit not quite as large as it previously did. In 2014, estates larger than $921,655 were assessed an estate tax in Rhode Island. So the increase that begins in 2015 is considerable.
Rhode Island’s new estate tax exemption puts it roughly in the middle of the pack as compared to other states which impose an estate tax. Neighboring Massachusetts gives its estates only a $1 million exemption. Some states still impose an estate tax on estates well below the million dollar amount though. Notably among them is New Jersey, which imposes a tax on all estates over $675,000 and does not adjust this amount for inflation.
Interestingly, a few states in the union impose what is called an “inheritance tax”, which is a tax on the amount the decedent’s heirs receive, as opposed to taxing the whole of the decedent’s estate prior to anyone receiving their distributions. In these states, individuals who receive larger shares of a person’s estate stand a higher likelihood of being taxed.
Two states, Maryland and New Jersey, impose both an estate tax and an inheritance tax. While many states do not levy a state estate tax, Rhode Island and most northeast states do. A thorough estate plan will review your assets and, if applicable, your spouse’s assets in order to reduce or eliminate estate or inheritance taxes in the future.
Remember that a permanent move to another state always necessitates a thorough review of your estate plan.