A- A A+

The 2015 Rhode Island Estate Tax Change

The 2015 Rhode Island Estate Tax Change

By: Anthony R. Mignanelli, Esq.

The Rhode Island Legislature passed a new estate tax law in June of 2014 which effectively raised the Rhode Island estate tax exemption to $1,500,000 and also eliminated the “cliff” tax that existed in the prior law. The effect of this new law for Rhode Island residents is that now spouses and domestic partners with a collective net taxable estate of $3,000,000 or less, with proper estate planning, can fully eliminate the estate tax on these assets. This is a major change in Rhode Island law and is significantly different from the prior estate tax law with a 2014 exemption of $921,655, or $1,843,310 per couple.

I) Analysis of the New Estate Tax Law

The new estate tax law, as set forth in Rhode Island General Laws 1956, 44-22-1.1 is as follows:

For decedents whose death occurs on or after January 1, 2015, a tax is imposed on the transfer of the net estate of every resident or nonresident decedent as a tax upon the right to transfer. The tax is a sum equal to the maximum credit for state death taxes allowed by 26 U.S.C. Section 2011, as it was in effect as of January 1, 2001; provided, however, that a Rhode Island credit shall be allowed against any tax so determined in the amount of sixty-four thousand four hundred ($64,400). Any scheduled increase in the unified credit provided in 26 U.S.C. Section 2010 in effect on January 1, 2003, or thereafter, shall not apply; provided, further, beginning on January 1, 2016 and each January 1 thereafter, said Rhode Island credit amount under this section shall be adjusted by the percentage of increase in the Consumer Price Index for all Urban Consumers (CPI-U) as published by the United States Department of Labor and Statistics determined as of September 30 of the prior calendar year; said adjustment shall be compounded annually and shall be rounded up to the nearest five dollar ($5.00) increment.

The “cliff” tax that did exist under the previous Rhode Island law essentially removed the estate tax exemption in the tax calculation, once the value of the taxable estate exceeded the decedent’s exemption for the year of death. The following is an example of the effect of the removal of the “cliff” tax for estates of persons passing away in 2014 versus 2015:

2014 Rhode Island Estate Tax Return

 

Table B Calculation: In Form RI-100A Rhode Island Estate Tax Return

$1,500,000.00 Net Taxable Estate

60,000.00 Standard Tax Deduction

$1,440,000.00 Taxable Estate

$64,400.00 Estate Tax Due to the State of Rhode Island

 

2015 Rhode Island Estate Tax Return

 

Table B Calculation: In Form RI-100A Rhode Island Estate Tax Return

 

$1,500,000.00 Net Taxable Estate

- 60,000.00 Standard Exemption

 

$1,440,000.00

 

$64,400.00 Estate Tax Due Before Credit

- 64,400.00 RI Estate Tax Credit ($1,500,000 exemption)

 

$0.00 Estate Tax Due to the State of Rhode Island

 

In order to take full advantage of this change in the law, spouses and domestic partners should implement a revocable trust in each of their estate plans allowing the survivor to benefit from those trust assets upon their passing. The basic design of the plan is to have the first to die person’s assets, valuing no more than $1,500,000, pass to that revocable trust for the benefit of the survivor’s lifetime. With proper drafting and administration of the trust, upon the death of the second person, the assets held in the trust will pass estate tax free to the remainder beneficiaries, typically the children of the decedent.

While at times this standard style of estate planning can be executed in a text book format, today, the bulk of most people’s assets are tax deferred retirement investments. These assets require a more complex estate plan and additional planning tools to help eliminate or reduce the estate tax.

Additionally, Rhode Island estate tax law reflects a Consumer Price Index adjustment. Therefore, the exemption amount will rise slowly to keep pace with inflation, allowing individuals to shelter more of their estate assets as those assets increase in value.

II) Financial Impact on the State of Rhode Island’s Estate Tax Revenue[1]

Estate Tax Revenue and Returns

Taxable Estates - Fiscal Year 2012

TAXABLE ESTATE VALUE

NUMBER OF ESTATES

   

$892,866 - $1 million

53

$1 million - $1.5 million

75

$1.5 million - $2 million

50

Over $2 million

67

   

Total Taxable Estates

245

Revenue Collected - Fiscal Year 2012

   

Lien Discharge

$211,700.00

Taxable Estates Closed

$26,260,068.47

Interest/Penalty

$502,799.35

Estimated Payments

$5,162,011.55

   

Total Revenue

$32,136,579.55

Taxable Estates - Fiscal Year 2013

TAXABLE ESTATE VALUE

NUMBER OF ESTATES

   

$910,656 - $1 million

40

$1 million - $1.5 million

73

$1.5 million - $2 million

44

Over $2 million

51

   

Total Taxable Estates

208

Revenue Collected - Fiscal Year 2013

 

   

Lien Discharge

$202,700.00

Taxable Estates Closed

$14,551,225.36

Interest/Penalty

$258,930.70

Estimated Payments

$16,131,538.35

   

Total Revenue

$31,144,394.41

Total revenue for taxable estates of $1.5 million or less

Fiscal Year

Number of Estates Closed

Tax Paid

     

2012

132

$4,198,000.00

2013

117

$3,777,466.00

     

Total Revenue

 

$7,975,466.00

The above figures indicate that approximately 55% of the taxable estates filed in 2012 and 2013 were at or below $1,500,000, and that the associated estate tax revenue generated by these estates was an average of just under $4,000,000 per year. This change in the law is a positive change for Rhode Island taxpayers and hopefully will influence a sufficient number of Rhode Islanders to maintain their residency in Rhode Island and not move to a state with no estate tax impact such as Florida.

 


[1] Information provided by the Rhode Island Division of Taxation.

Anthony R. Mignanelli, Esq., the founding partner of Mignanelli & Associates, Ltd., a law firm located in Providence, Rhode Island, concentrates his practice in the areas of estate planning, estate settlement and trust administration. In addition, he lectures frequently before both professional groups and social service organizations regarding estate planning, as well as estate planning for persons with disabilities. Attorney Mignanelli may be contacted at This email address is being protected from spambots. You need JavaScript enabled to view it. or by telephone at 401-455-3500.