Life Insurance Trusts Ease Burden of Rhode Island’s Estate Tax Rates
Residents of Rhode Island will note that the smallest state also happens to have one of the largest tax burdens. Low exemptions plus a high maximum tax rate can quickly dwindle the assets you’ve accumulated over your lifetime. To protect your heirs and your legacy, you’re going to need an estate tax plan.
Estate taxes in Rhode Island are levied against the estates of residents as well as the estates of individuals who own properties in the state. Rhode Island’s tax rate is among the highest in the United States, so residents may want to seek out estate planning options like irrevocable life insurance trusts (ILIT) funded by a properly funded life insurance policy.
What You Need to Know About Rhode Island Estate Tax
Laws were passed in 2014 that changed the estate tax laws for deaths after January 1, 2015. Today, the estate exemption amount sits at $1.5 million per individual, with a maximum tax rate of 16%. The state uses a graduated tax scale and levies tax on the amount after the exemption as follows:
|Rhode Island Estate Taxable Amount After Exemption|
Rhode Island spouses are permitted to use their partner’s exemption and pass on assets without being taxed. However, all other beneficiaries are going to have to deal with estate taxes. In this case, it might be wise to transfer some of that estate into an ILIT.
How ILITs Work to Minimize Estate Taxes
In a state with a high tax burden like Rhode Island, one good way to minimize estate taxes is to transfer assets to a life insurance trust over a period of years. This will allow you to pass on funds to heirs without them having to deal with the cost of estate taxes. It also prevents heirs from having to liquidate your assets to pay the tax. Here are a few benefits of using an ILIT for estate planning in Rhode Island:
- The ILIT bypasses probate, meaning that your heirs can get funds without delay.
- It can be used to control the spending of heirs by creating a fixed schedule of payments or even putting a responsible person in control of doling out funds.
- The trust is outside of your estate, meaning it won’t impact federal or state estate taxes.
- It offers flexibility, as ongoing purchases, as well as cash value, can be used to increase overall coverage.
- On your death, the life insurance policies pay out tax-free benefits.
Of course, these are just some of the benefits of using an ILIT to simplify your estate and pass on assets to heirs easily. ILITs can also be used as a source of asset protection and even provide ongoing patronage to a charity or organization you care about.
At Howard Kaye, we use life insurance to protect our clients’ heirs and estates so their legacy can live on. By matching clients with the right policies, we can protect your assets and your heirs from the costs associated with settling an estate in Rhode Island. For more information, contact us at 800-DIE-RICH.