If you are thinking about what will happen to your assets after your death, one of the things that you may have to consider is the estate tax. There is both a federal and state estate tax if your assets are above a certain amount. However, there may be ways for you to avoid certain taxes and fees if you consult an experienced Rhode Island estate planning attorney. A skilled attorney can help you preserve as many of your assets as possible for your heirs or any other beneficiaries you designate.
Estate Tax Basics
Estate tax is an often misunderstood area of the law. The vast majority of people are not subject to an estate tax because the sum value of their assets fall under the limit. However, the tax is still important for everyone to be aware of so they can plan appropriately. Just like you pay both federal and state income taxes, you could be subject to both state and federal estate taxes.
Estates that are over $5,450,000 are subject to the federal estate tax. The federal government currently imposes a maximum tax of 40% on amounts over that limit. So if someone dies with assets worth $6,450,000, only the million dollars that are over the threshold will be taxed. Therefore, if the 40% tax rate applies, the total federal estate taxes owed would be $400,000. Unless the estate plan designates otherwise, the taxes are usually taken out before the money is distributed to beneficiaries. In this example – ignoring the state estate tax for now – the distributable estate would be $6,050,000.
States usually have a lower estate tax exemption amount, and Rhode Island follows this rule. The 2018 estate tax exemption amount in Rhode Island is $1,537,656. Estates above that amount are currently taxed at a maximum rate of 16%.
No matter the size of your estate, there may be ways for you to pass on your wealth and assets without incurring the federal or state estate tax. One of the most common exemptions is the spousal exemption. If you are legally married, you can leave everything to your spouse without incurring federal or Rhode Island estate tax. Another way to avoid paying estate tax is through trusts. To avoid these taxes, the trusts need to be structured in specific ways, but most irrevocable trusts will usually qualify. Individuals are also allowed to give up to $14,000 each year to any given individual without counting as part of the gift tax exemption. Finally, many people avoid estate taxes through charitable bequests. If you are planning to give money to registered charities – either during life or as part of your estate plan – these amounts are usually exempt from taxation, but you should consult an estate planning attorney to make sure.
Experienced Rhode Island Estate Planning Attorney
Every situation is different and the laws and amounts change frequently. Thus, you will want to consult with a knowledgeable Rhode Island estate tax attorney to make sure that the exemptions apply and to help you preserve as many of your assets as possible. The legal team at Bilodeau Capalbo, LLC can help you with all your estate planning needs. Call today at 401-300-4055 or fill out the contact form on the right side of the page so we can schedule a free consultation today!