global Tax Do I Owe State Estate Taxes Even if There’s No Federal Tax Due? March 17, 2025 Attention RI and MA taxpayers…state estate taxes could take a bigger bite out of your estate than you may expect. Understanding the rules and taking advantage of tax-saving strategies—especially lifetime gifting—can help minimize the impact on your heirs. Many people assume that if their estate isn’t subject to federal estate taxes, they’re in the clear—but that’s not always the case at the state level. Here, we break down the estate tax thresholds in Rhode Island and Massachusetts, planning strategies to minimize state estate taxes, and common misconceptions about estate tax liability. What are the estate tax thresholds in Rhode Island and Massachusetts? Federal Estate Tax: In 2025, the federal estate tax exemption is at a recorded high of $13.99 million ($27.98 for married couples). State Estate Taxes: Rhode Island’s estate tax exemption is $1,802,431 and Massachusetts’ is $2 million. Key items to note: No Clawback for Prior Gifts- Unlike the federal estate tax, neither Rhode Island nor Massachusetts considers lifetime gifts when calculating the taxable estate. This means that gifting assets during your lifetime can be an effective strategy to reduce state estate tax liability. Rhode Island and Massachusetts' estate tax applies progressively- Only the amount above the exemption is taxed. Common misconceptions: “If I’m under the federal threshold, I don’t owe estate taxes.” → False! State thresholds are much lower.“Lifetime gifts count against my estate tax exemption.” → False! Prior gifts are not included in RI and MA estate calculations.“Estate taxes only apply to the wealthiest individuals.” → False! Many middle-class families with real estate and retirement assets may trigger state estate taxes. How can taxpayers minimize these state estate taxes? Lifetime giving- Since neither state includes prior gifts in the estate calculation, gifting assets during your lifetime can help keep your taxable estate below the exemption threshold. Trusts and estate planning- Establishing irrevocable trusts, credit shelter trusts, or gifting trusts can help protect assets and reduce estate tax exposure. Charitable giving- Donating assets to charitable organizations can reduce the taxable estate while supporting causes that matter to you. Marital deduction and portability- Proper planning can ensure that assets pass to a surviving spouse tax-efficiently, potentially deferring estate taxes until the second spouse's passing. Proper estate planning can help minimize the impact and ensure that more of your wealth passes to your heirs rather than the state. We can help you navigate these strategies.
