While there is no inheritance tax in Rhode Island, a deceased person’s estate may be subject to state and federal estate taxes. Unlike inheritance tax, estate taxes are paid by the estate of the person who died, not by the heirs and beneficiaries. The maximum state estate tax rate is 16%, and the maximum federal estate tax rate is 40%, both of which are paid out of the total cash and assets of the deceased before the rest is left to the beneficiaries. However, in many cases, all but the wealthiest Rhode Island families will be exempt from state and federal estate taxes.
Paying Taxes on Your Inheritance
A decedent will only owe estate taxes if the amount of his assets has a gross value of more than the exemption limit. The gross value of an estate is the total combined amount of assets, including cash, real estate, vehicles, certificates of deposit, investment accounts, life insurance proceeds, retirement accounts, and personal property. These limits are adjusted every year but stand at $1,515,156 for Rhode Island tax and $5.49 million for federal tax in 2017. If the gross value is under the limit, the estate will likely not owe any taxes.
The following factors may result in lower estate taxes (or no tax liability at all):
- Deductions. Depending on the number of exemptions claimed on the final tax return, the taxable portion of the estate may be reduced so low that no taxes are owed.
- Spousal inheritance. Assets left to a legally-married surviving spouse, whether an opposite-sex or same-sex partner, pass on to the spouse free of federal and Rhode Island estate tax.
- Assets held in trust. In most cases, assets in irrevocable trusts are exempt from estate taxes.
- Small cash gifts. Cash gifts or donations over $14,000 per year may be taxable unless the gifts are given to a spouse or an eligible charity.
Not only do heirs and beneficiaries inherit most assets free of tax, they also will not have to pay income tax on inheritances other than inherited retirement accounts. To ensure that you and your family receive the amount of assets intended by your loved one, speak with our experienced legal team. Call us today, or fill out our online contact form for more information.