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Most people hear the phrase ‘estate tax’ and assume it does not apply to them. That may be true at the federal level. But in Rhode Island and Massachusetts, many families find themselves facing a state estate tax bill they never expected, simply because they own a home, have retirement savings, and carried a life insurance policy for decades.
Estate tax planning is not just about reducing a bill on the day you die. It is about protecting what you have built, giving you control over how it passes to the next generation, and making sure your family is not forced into rushed financial decisions during an already difficult time.
The Federal Estate Tax in 2026
The federal estate tax applies to the total value of your estate at death, including real estate, investment and retirement accounts, business interests, and life insurance proceeds paid to your estate.
For 2026, the federal exemption is $15 million per individual, or $30 million for a married couple using both exemptions. Assets above that amount are taxed at rates up to 40 percent. For most families, the federal estate tax is not an immediate concern at current exemption levels.
One important development: the One Big Beautiful Bill Act, signed into law in July 2025, made the elevated exemption permanent and indexed it for inflation going forward. The sunset that was previously scheduled for the end of 2025 did not happen. That said, tax laws change, and a plan built around today’s federal threshold should still account for the possibility of future legislative shifts.
Rhode Island Has Its Own Estate Tax, and the Threshold Is Low
This is where many Rhode Island families are caught off guard. Rhode Island has its own estate tax, and it kicks in well below the federal level.
For 2026, the Rhode Island estate tax exemption is $1,838,056. Estates above that threshold are subject to state estate tax at graduated rates from 0.8 percent to 16 percent. The exemption is adjusted annually for inflation, but it remains one of the lowest state estate tax thresholds in the country.
For Rhode Island homeowners, landlords, and business owners, that threshold is easier to reach than most people expect. A home worth $900,000, a retirement account, a life insurance policy, and some savings can put an estate over the line quickly, particularly in desirable communities along the coast or in Providence’s suburbs.
One planning consideration specific to Rhode Island: the exemption is not portable between spouses. Unlike the federal system, which allows a surviving spouse to use the deceased spouse’s unused exemption, Rhode Island does not offer that benefit. This means that without proper trust planning, a married couple can effectively lose one exemption entirely, leaving the surviving spouse’s estate exposed when the time comes.
Massachusetts: A Lower Threshold Too
Massachusetts has its own estate tax as well, with a $2 million exemption. Estates above that level are subject to state tax at rates ranging from 0.8 percent to 16 percent, with a $99,600 credit applied to reduce the overall bill.
For Massachusetts residents who own a home, have retirement savings, and carry life insurance, it is not difficult to find yourself above that threshold. This is a real issue for many upper-middle-class families in the state, not just the very wealthy.
Why Both States Matter Even If You Think You Live in One
Many families have ties to both Rhode Island and Massachusetts, whether through a vacation home, business interests, or a move later in life. Estate tax is generally determined by domicile at death, but real property is taxed by the state where it sits. Owning property in both states can mean dealing with both tax systems.
That is one reason why working with an attorney licensed in both states matters. The planning that works well for a Rhode Island resident is not always structured the same way as a plan designed for a Massachusetts resident, even when the underlying goals are identical.
Common Estate Tax Planning Strategies
There is no single solution that works for every family. The right approach depends on the size and makeup of your estate, your family structure, your goals, and your timeline. A few strategies come up frequently for families in this region.
Credit Shelter Trusts for Married Couples
Because Rhode Island does not offer spousal portability, a credit shelter trust (sometimes called a bypass trust or B trust) is one of the most important tools for Rhode Island married couples. At the first spouse’s death, assets up to the exemption amount are placed in the trust rather than passing outright to the surviving spouse. Those assets stay out of the surviving spouse’s taxable estate while still providing income and access. This preserves both spouses’ exemptions rather than losing one.
Annual Gifting
Each year, you can give up to $19,000 per recipient without triggering gift tax reporting or using any of your lifetime exemption (2026 amount). For a married couple giving to multiple children or grandchildren, this can move a meaningful amount of wealth out of a taxable estate over time. It is one of the simplest strategies available and requires no special trust structure.
Irrevocable Trusts
Assets transferred into a properly structured irrevocable trust are generally removed from your taxable estate. Different types accomplish different goals. Some are designed to benefit a surviving spouse while keeping assets out of both spouses’ estates. Others are designed to benefit children or grandchildren while providing the grantor with some form of retained interest. These structures require careful drafting and should be coordinated with your overall plan.
Irrevocable Life Insurance Trusts (ILITs)
Life insurance proceeds are income tax-free, but if you own the policy at death, the death benefit is included in your taxable estate. For families with large policies, this can push an estate over a state threshold quickly. Placing a policy inside an ILIT removes the proceeds from your estate while still making them available to your heirs, and can provide liquidity to pay estate taxes on other assets like real estate or a business.
Charitable Strategies
Charitable remainder trusts, charitable lead trusts, and donor-advised funds can reduce estate tax exposure while supporting causes you care about. These are worth exploring if charitable giving is already part of your values and financial picture.
SLATs and GRATs for Larger Estates
For families with larger estates approaching or exceeding the federal threshold, Spousal Lifetime Access Trusts (SLATs) and Grantor Retained Annuity Trusts (GRATs) are tools worth discussing with your attorney. Both allow assets to be moved out of a taxable estate while preserving some flexibility for the family. These structures are more complex and need to be designed carefully to avoid IRS scrutiny.
Estate Tax Planning for Business Owners
For business owners, estate tax planning intersects directly with succession planning. A business that represents a large share of your net worth can create a concentrated problem, particularly if the business is illiquid and heirs would need to sell it to pay the tax.
Valuation discounts may be available for interests in closely held businesses or family limited partnerships, which can reduce the taxable value of those assets. Buy-sell agreements also play a role in determining how ownership transfers at death and what value is used for estate tax purposes. For business owners already thinking about succession, integrating estate tax planning into that process early is worth doing.
Frequently Asked Questions
What is the federal estate tax exemption in 2026?
The federal exemption is $15 million per individual in 2026, or $30 million for a married couple using both exemptions through portability. This was made permanent under the One Big Beautiful Bill Act signed in July 2025, so there is no current sunset date. Assets above the exemption are taxed at rates up to 40 percent.
Does Rhode Island have a state estate tax?
Yes. Rhode Island taxes estates above $1,838,056 in 2026 at rates from 0.8 percent to 16 percent. This exemption is adjusted each year for inflation. It is one of the lower state estate tax thresholds in the country, which means many Rhode Island homeowners and business owners are affected even if they would owe nothing at the federal level.
Does Massachusetts have a state estate tax?
Yes. Massachusetts taxes estates above $2 million, with a $99,600 credit applied to reduce the overall liability. Tax rates range from 0.8 percent to 16 percent depending on estate size.
Is the Rhode Island estate tax exemption portable between spouses?
No. Unlike the federal system, Rhode Island does not allow a surviving spouse to use the deceased spouse’s unused exemption. Without proper trust planning, a married couple can lose one exemption entirely. A credit shelter trust is the most common way to address this.
What if I own property in both RI and MA?
Real property is taxed in the state where it is located, regardless of where you are domiciled. If you own property in both states, your estate may be subject to both state estate tax systems. Working with an attorney licensed in both Rhode Island and Massachusetts helps ensure your plan accounts for both sets of rules.
Is life insurance included in my taxable estate?
If you own the policy at death, the death benefit is generally included in your taxable estate for both federal and state purposes. An Irrevocable Life Insurance Trust (ILIT) can remove the proceeds from your estate while still making them available to your heirs.
Do I need to worry about estate taxes if I already have a will and a trust?
A will and revocable living trust are a good foundation, but they do not reduce estate taxes on their own. Estate tax reduction requires specific additional strategies, such as irrevocable trusts, gifting plans, or other tools designed to move assets out of your taxable estate. An estate planning attorney can help you evaluate whether additional planning makes sense for your situation.
A Plan That Works for Where You Live
Federal estate tax planning gets most of the attention, but for families in Rhode Island and Massachusetts, the state estate tax is often the more immediate concern. Both states have thresholds that affect a much broader group of people than the federal exemption does, and the planning strategies that address them are different.
At Lambros Law Office, we work with individuals, families, and business owners in Rhode Island and Massachusetts who want to protect what they have built and make sure it passes to the next generation as efficiently as possible. If you have not reviewed your plan with these state-level rules in mind, now is a good time to start.