If you’re a Rhode Island resident, your estate is more likely to owe Rhode Island estate tax than it is to owe federal estate tax. That’s because for deaths in 2014, estates of more than $921,655 may be subject to the Rhode Island estate tax; for 2013 deaths, the exempt amount was $910,725. By contrast, only much larger estates—those worth at least $5.34 million for deaths in 2014—are subject to the federal estate tax.
Both the federal and the Rhode Island amounts are adjusted for inflation each year.
Federal tax law allows spouses to share their individual federal estate tax exemptions; this is called “portability” of exemptions. If the first spouse to die doesn’t use up all of his or her federal estate tax exemption, then after the second spouse dies, his or her estate can use whatever was left over. Rhode Island, however does not allow spouses to share their individual exemptions.
Tax Exemption for the Surviving Spouse
All assets left to a surviving spouse pass free of federal and Rhode Island estate tax. This is true for both opposite-sex and same-sex couples who are legally married. Rhode Island began allowing same-sex couples the same marital deduction as opposite-sex couples in 2012, after the state's Division of Taxation issued a ruling on the question. The IRS did not begin applying the marital deduction to same-sex spouses after the U.S. Supreme Court decision in United States v. Windsor, handed down in June 2013.
The Rhode Island Filing Requirement
If, at your death, you leave assets with a gross value of more than the exempt amount in effect at the time, the executor of your estate will need to file a Rhode Island estate tax return. Deductions may reduce the amount of the taxable estate, so that the estate may not actually end up owing any tax. For example, any assets left to your spouse pass tax-free. But the return must still be filed.
If you’re a nonresident, a Rhode Island estate tax return will need to be filed only if you owned valuable Rhode Island real estate or other tangible assets that were kept in the state.
Some estates choose to file a state estate tax return even if it's not required. The advantage to filing is that the estate can get a statement from the Rhode Island Division of Taxation that no tax is due and get a release of the state's automatic lien (claim) that attaches to real estate when someone dies.
The Rhode Island estate tax rate is much lower than the federal estate tax rate of 40%. The maximum state rate, imposed on very large estates, is 16%.
What’s Your Gross Estate?
For tax purposes, your gross estate includes just about everything you own at your death, including:
- Bank accounts and certificates of deposit
- investment accounts
- Real estate
- Vehicles and other personal property
- Life insurance proceeds, unless you transfer ownership of the policy more than three years before your death
- Retirement account funds
- Business interests (whether the business was a sole proprietorship, limited liability company, or small corporation)
If you make any large taxable gifts while you’re alive, their value may also need to be included in your estate for estate tax purposes. Under current (2013) law, only gifts of more than $14,000 per year per recipient are taxable; gifts of any amount to your spouse or to charities are generally exempt.
Your Executor’s Responsibility
The executor you name in your will is the person responsible for filing estate tax returns (state and federal) for your estate, if they’re required. A Rhode Island estate tax return must be filed nine months after the death; that’s also when any tax is due. If your estate contains Rhode Island real estate, there’s also a form to file to release tax claims against the property. Information and forms are available from the
The executor will need to hire an experienced lawyer or CPA to prepare the estate tax return. The preparer’s fee can be paid from estate assets.