Estate planning can be a very complex process. People need to think about their likely future needs and also about their families. From choosing the right assets to leave to specific loved ones to planning for incapacity, there are many crucial steps involved in the estate planning process.
Thinking about estate taxes is often a very important step for those with significant personal resources. Without proper planning, a significant portion of someone’s estate could end up going to pay state and federal estate taxes. Only advance planning can help those with valuable resources avoid such taxes diminishing their legacy when they die.
Sizable assets could trigger taxes
Those with valuable personal resources are at noteworthy risk of estate taxes. Real property and businesses, as well as investment accounts, are among the assets that could potentially trigger estate taxes in Rhode Island. Every year, the value of the estate shifts slightly at both the state and federal levels.
In 2023, estates in Rhode Island worth more than $1,733,264 will need to file a return and pay estate taxes. The federal threshold for estate taxes is much higher, as the estate needs to be worth $12,920,000 or more for federal estate taxes to apply.
Both the federal and Rhode Island state estate tax are progressive. That means that the more the estate’s value exceeds the threshold for taxes, the higher the tax rate that applies. Large estates in Rhode Island may need to pay up to 16% of their total value to the state for estate taxes. At the federal level, the highest tax rate is a shocking 40%!
Planning might include making gifts throughout one’s golden years to charitable causes and family members or creating a trust. Arranging for some property to transfer automatically at the time of one’s death can also diminish the overall value of the estate and the likelihood of estate taxes.
Understanding the obligations that can diminish how much someone leaves for their loved ones when they die may help those planning an estate put together a more comprehensive estate plan that will ultimately benefit their loved ones as much as possible.