Don't Let Rhode Island Estate Laws Destroy Your Legacy
📖 Last updated 7/1/2025 • By Jason Siperstein, CFA, CFP®, RMA®
⚖️ Reality Check: Here’s what happens when you die without a will in Rhode Island: The state becomes your estate planner. And it follows a formula that ignores what you actually wanted for your family.
When Tom died without a will, his wife Sarah inherited everything — exactly what they expected. But then the real problems started. Some assets were tied up in probate for months — a process that made her financial situation part of the public record.
Financial institutions required extra documentation before releasing any funds. Legal fees were higher than needed. Without clear instructions, Sarah faced unnecessary complications and difficult decisions she shouldn’t have had to make alone. Sarah found herself wrestling with questions she and Tom never addressed:
“Should the family home go to their daughter who can’t afford the taxes, or their son in California?”
“How do you fairly divide sentimental items when one child treasures them and the other doesn’t?”
⚠️ The bigger problem: Neither Tom nor Sarah knew about Rhode Island’s estate tax. When Sarah eventually passes, the state will claim thousands in taxes that proper planning could have avoided entirely.
When Tom died without a will, his wife Sarah inherited everything — exactly what they expected. But then the real problems started. Some assets were tied up in probate for months — a process that made her financial situation part of the public record.
Financial institutions required extra documentation before releasing any funds. Legal fees were higher than needed. Without clear instructions, Sarah faced unnecessary complications and difficult decisions she shouldn’t have had to make alone. Sarah found herself wrestling with questions she and Tom never addressed:
“Should the family home go to their daughter who can’t afford the taxes, or their son in California?”
“How do you fairly divide sentimental items when one child treasures them and the other doesn’t?”
⚠️ The bigger problem: Neither Tom nor Sarah knew about Rhode Island’s estate tax. When Sarah eventually passes, the state will claim thousands in taxes that proper planning could have avoided entirely.
TOM AND SARAH’S STORY ISN’T UNIQUE
This is what 68% of Rhode Island families face: unnecessary complications, difficult decisions, and tax bills that simple planning prevents. Estate planning isn’t just about who gets what—it’s about making the process easier for your family and protecting more of your assets from unnecessary taxes and fees.
Rhode Island has two costly surprises waiting for unprepared families. First, Rhode Island’s unexpected estate tax—most states have none. Second, Medicaid’s asset spend-down requirements that can quickly deplete your savings. Understanding these items ensures your family keeps more of what you’ve earned.
Rhode Island’s Unexpected Estate Tax Challenge
Here’s what catches most Rhode Island families off guard: 37 out of 50 states have NO state estate tax at all. Rhode Island is one of only 12 states plus DC that impose a state estate tax on top of federal taxes.
What makes this even more dangerous is timing. The nationwide real estate surge—with home values up roughly 40% in many markets—is quietly pushing ordinary Rhode Island families into estate tax territory.
Consider this simple math: Many Rhode Island families who bought their homes years ago for $400,000-$600,000 now find themselves sitting on million-dollar properties. Add in retirement accounts, savings, and other assets that seemed “modest” just a few years ago, and suddenly they’re facing a tax bill their family never saw coming…and suddenly they’re over Rhode Island’s estate tax threshold:
This especially affects:
- Recent retirees with paid-off homes and accumulated retirement savings
- Small business owners who’ve been diligent savers but never considered themselves “wealthy”
- Newer residents from states without estate taxes or assume estate taxes only affect the ultra-wealthy
Even families who discover Rhode Island has an estate tax often dramatically underestimate their liability. And when they search online for help, they find calculators and articles that make their tax burden seem much lower than it actually is.
Here’s what catches most Rhode Island families off guard: 37 out of 50 states have NO state estate tax at all. Rhode Island is one of only 12 states plus DC that impose a state estate tax on top of federal taxes.
What makes this even more dangerous is timing. The nationwide real estate surge—with home values up roughly 40% in many markets—is quietly pushing ordinary Rhode Island families into estate tax territory.
Consider this simple math: Many Rhode Island families who bought their homes years ago for $400,000-$600,000 now find themselves sitting on million-dollar properties. Add in retirement accounts, savings, and other assets that seemed “modest” just a few years ago, and suddenly they’re facing a tax bill their family never saw coming…and suddenly they’re over Rhode Island’s estate tax threshold:
This especially affects:
- Recent retirees with paid-off homes and accumulated retirement savings
- Small business owners who’ve been diligent savers but never considered themselves “wealthy”
- Newer residents from states without estate taxes or assume estate taxes only affect the ultra-wealthy
Even families who discover Rhode Island has an estate tax often dramatically underestimate their liability. And when they search online for help, they find calculators and articles that make their tax burden seem much lower than it actually is.
Calculating the Rhode Island Estate Tax
Rhode Island estate tax calculations trip up most people—and the mistakes are expensive.
Rhode Island has a $1,802,431 exemption for 2025, with tax rates from 0.8% to 16%. But Rhode Island handles this exemption differently than most states and the federal system:
✅ Rhode Island: Tax the entire estate, then subtract a credit of $85,375 *
⚠️ Most states & federal: Subtract the exemption first, then tax what’s left
* The $85,375 credit represents the tax that would be owed on the first $1,802,431 of any estate—essentially giving you the exemption benefit, but through a credit rather than by reducing the taxable amount upfront.
Rhode Island estate tax calculations trip up most people—and the mistakes are expensive.
Rhode Island has a $1,802,431 exemption for 2025, with tax rates from 0.8% to 16%. But Rhode Island handles this exemption differently than most states and the federal system:
✅ Rhode Island: Tax the entire estate, then subtract a credit of $85,375 *
⚠️ Most states & federal: Subtract the exemption first, then tax what’s left
* The $85,375 credit represents the tax that would be owed on the first $1,802,431 of any estate. This essentially giving you the exemption benefit, but through a credit rather than by reducing the taxable amount upfront.
Example 1: Leslie’s $100,000 Surprise
Let’s walk through how this actually works. Leslie dies in 2025 with a $3 million estate.
Step 1: Calculate tax on the full $3,000,000 using Rhode Island’s brackets below (partial 2025 RI estate tax table for relevant range):
- Base tax for estates over $2,540,000: $146,800
- Amount over $2,540,000: $460,000 ($3,000,000 – $2,540,000)
- Tax on excess: $460,000 × 8.8% = $40,480
- Total gross tax: $146,800 + $40,480 = $187,280
Step 2: Subtract the Rhode Island credit
- $187,280 – $85,375 = $101,905
Leslie’s family owes $101,905. That’s over $100,000 that could have stayed in the family with proper planning—not just getting the calculation right, but using strategies like irrevocable trusts, annual gifting, or charitable planning to reduce the taxable estate in the first place.
THE GOOGLE MISTAKE
If you search online for Rhode Island estate tax help, you’ll find reputable sites using the wrong calculation. They use the method that works for federal taxes and most other states—subtract the exemption first:
Wrong calculation (example below):
- $3,000,000 – $1,802,431 = $1,197,569
- Tax on $1,197,569 = $48,885
Incorrect Calculation | Screenshot taken July 2, 2025
This fails because you’re using the wrong tax rates. When you calculate tax on only $1.2 million, you’re using lower rates (4.0%, 5.6%, 6.4%) meant for smaller estates. But Rhode Island’s progressive system is designed so that $3 million estates should face higher rates (7.2%, 8.8%) on the upper portions.
By subtracting the exemption first, you’re charging Leslie the tax rates meant for a $1.2 million estate instead of the rates Rhode Island intended for a $3 million estate.
The difference in Leslie’s case? Over $50,000—and for larger estates, the gap gets even wider.
The Medicaid Asset Challenge
Even if you navigate the estate tax successfully, another challenge awaits: long-term care costs. In Rhode Island, nursing home care averages over $100,000 per year, and Medicare won’t cover it.
Medicaid will cover these costs, but only after you’ve spent down almost everything you own. A qualified Rhode Island estate attorney can help you understand Medicaid planning strategies that protect assets while ensuring eligibility for benefits.
Even if you navigate the estate tax successfully, another challenge awaits: long-term care costs. In Rhode Island, nursing home care averages over $100,000 per year, and Medicare won’t cover it.
Medicaid will cover these costs, but only after you’ve spent down almost everything you own. A qualified Rhode Island estate attorney can help you understand Medicaid planning strategies that protect assets while ensuring eligibility for benefits.
QUALIFYING FOR MEDICAID
Medicaid has strict income and asset limits that vary by state. In Rhode Island, you must meet all of the criteria to qualify:
✅ Income Limit:
- < $2,901 per month for single applicant.
- If only one spouse is applying, non-applicant income is disregarded.
- < $5,802 per month if both spouses are applying.
✅ Asset Limit:
- < $4,000 for applicant spouse.
- If only one spouse is applying, the non-applicant spouse’s limit is 50% of assets up to $157,920, thanks to the Community Spouse Resource Allowance (CSRA).
- < $8,000 is both spouses are applying.
* Your primary home, primary vehicle, and burial plot are typically exempt. IRAs and 401Ks may also be protected if they are in “payout status,” meaning you’re taking Required Minimum Distributions (RMDs)—though not all states offer this exemption.
Example 2: Robert and Karen’s $617,080 Spend-Down
Robert and Karen had built a $2 million estate over their careers—$900,000 in retirement accounts, a $450,000 home, and $775,000 in savings and investments. When Robert needed nursing home care, they discovered Medicaid’s harsh reality.
The Medicaid Calculation:
- Total liquid assets: $775,000 (savings + investments)
- Karen could keep: $157,920 (maximum spousal protection)
- Robert could keep: $4,000
- Required spend-down: $617,080
Their $900,000 in IRAs were completely protected because they were taking required distributions—a rule most people don’t know exists.
However, they could have planned more proactively. With just 5 years of advance planning, Robert and Karen could have protected most of their wealth through:
- Irrevocable Trust – Moving assets into a trust beyond Medicaid’s reach (must be done 5+ years before needing care)
- Gifting to Children – Transfer assets to children (must be done 5+ years before needing care)
- Spend-Down on Exempt Assets – Pay debts, home improvements, buy a car, prepay funeral expenses
Instead of losing over $600,000, they might have protected 80%+ of their liquid wealth while still qualifying for care.
Example 2: Robert and Karen’s $617,080 Spend-Down
Robert and Karen had built a $2 million estate over their careers—$900,000 in retirement accounts, a $450,000 home, and $775,000 in savings and investments. When Robert needed nursing home care, they discovered Medicaid’s harsh reality.
The Medicaid Calculation:
- Total liquid assets: $775,000 (savings + investments)
- Karen could keep: $157,920 (maximum spousal protection)
- Robert could keep: $4,000
- Required spend-down: $617,080
Their $900,000 in IRAs were completely protected because they were taking required distributions—a rule most people don’t know exists.
However, they could have planned more proactively. With just 5 years of advance planning, Robert and Karen could have protected most of their wealth through:
- Irrevocable Trust – Moving assets into a trust beyond Medicaid’s reach (must be done 5+ years before needing care)
- Gifting to Children – Transfer assets to children (must be done 5+ years before needing care)
- Spend-Down on Exempt Assets – Pay debts, home improvements, buy a car, prepay funeral expenses
Instead of losing over $600,000, they might have protected 80%+ of their liquid wealth while still qualifying for care.
Even well-intentioned families make critical mistakes that can undermine their estate plans. Families can avoid these common pitfalls by working with an experienced Rhode Island estate attorney.
Getting Your Estate Plan Right
Both of these challenges—estate taxes and Medicaid spend-downs—can be addressed with proper planning. But the planning must be done correctly and in advance.
Your estate plan should include the essential documents: wills to direct who gets your assets, trusts to protect assets from taxes and creditors, powers of attorney to manage your finances if you can’t, and healthcare directives to ensure your medical wishes are followed.
But having the documents isn’t enough. They must be properly executed, regularly updated, and coordinated with your overall financial strategy.
Both of these challenges—estate taxes and Medicaid spend-downs—can be addressed with proper planning. But the planning must be done correctly and in advance.
Your estate plan should include the essential documents: wills to direct who gets your assets, trusts to protect assets from taxes and creditors, powers of attorney to manage your finances if you can’t, and healthcare directives to ensure your medical wishes are followed.
But having the documents isn’t enough. They must be properly executed, regularly updated, and coordinated with your overall financial strategy.
Estate Planning Questions We Hear Most Often
Estate planning addresses more than just taxes. It covers incapacity planning, medical decision-making, and family protection. Even smaller estates can benefit from proper planning to avoid probate delays and ensure your wishes are followed.
Rhode Island taxes your entire estate, then subtracts a credit—most other states subtract the exemption first, then tax what’s left. This difference often leads to incorrect estimates from online calculators that can underestimate your actual tax bill by 50% or more.
Review your estate plan every 3-5 years or after major life changes like marriage, divorce, new children, or significant asset changes. Rhode Island laws can change, and your personal situation evolves, so regular reviews ensure your plan stays current and effective.
Costs vary widely based on complexity. Basic plans (wills, powers of attorney) might range from $1,000-$3,000, while comprehensive plans with trusts can cost $5,000-$15,000 or more. Most attorneys offer consultations to discuss your needs and provide estimates based on your specific situation.
Federal estate tax only kicks in at $13.99 million (2025), affecting very few families. Rhode Island’s threshold is much lower at $1.8 million, catching many more families who owe no federal estate tax
Ready to build your estate plan? The families who lose the most to Rhode Island’s estate tax aren’t the ones who never considered planning—they’re the ones who thought they had more time.
By Jason Siperstein, CFA, CFP®, RMA®
Jason Siperstein is a fee-only financial planner that specializes in retirement planning. He is based in Rhode Island and serves clients locally and across the country. Jason is called on by local and national news to share his insights.
