50 RI Bar J., No. 1, Pg. 23 (September, 2001). How Rhode Island Dealt with the Change in the State Death Tax Credit.

Author:ANTHONY R. MIGNANELLI, ESQ.
 
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Rhode Island Bar Journal

Volume 50.

50 RI Bar J., No. 1, Pg. 23 (September, 2001).

How Rhode Island Dealt with the Change in the State Death Tax Credit

How Rhode Island Dealt with the Change in the State Death Tax CreditANTHONY R. MIGNANELLI, ESQ.Anthony R. Mignanelli is the principal of Mignanelli & Associates, Ltd., a law firm located in Providence, Rhode IslandRecently, the Rhode Island Legislature amended the Rhode Island Estate Tax law, which used a state death tax credit as its tax, to compensate for the loss of projected revenue to the state which would have resulted from the recent changes in the federal estate tax law.

The federal estate tax law has been changed whereby the estate tax will be gradually eliminated by the year 2010 and, in turn, the state death tax credit will be eliminated by the end of 2004. During the intervening years between 2002 and 2004, the state death tax credit amount under the new legislation slowly shrinks, thereby reducing the amount of revenue that will flow to states such as Rhode Island which have based their estate tax on the state death tax credit. At the end of 2004, the State Death Tax Credit is eliminated thereby eliminating the tax the state is able to collect. In an effort to maintain the tax revenue that is currently being received under the existing estate tax law, Rhode Island has now effectively enacted its own estate tax by taxing those estates that exceed the current federal estate tax credit exemption of $675,000. Those estates will now be taxed at the federal state death tax credit amount that existed before Congress enacted the new law eliminating the federal estate tax.

THE NEW RHODE ISLAND ESTATE TAX LAWRhode Island's new law reads in pertinent part as follows:

44-22-1.1. Tax on net estate of decedent.- (a) (2) For decedents whose death occurs on or after January 1, 2002, a tax is imposed upon the transfer of the net estate of every resident or nonresident decedent as a tax upon the right to transfer. The tax is a sum equal to the maximum credit for state death taxes allowed by 26 U.S.C. Section 2011 as it was in effect as of January 1, 2001.

Under R.I. Gen. Laws § 44-22-1.1, should a person die with an adjusted taxable estate which is greater than $675,000, his or her estate will be subjected to taxes on the assets exceeding the credit amount of $675,000 as set forth in 26 U.S.C. § 2011 for the tax year 2001.(fn1)

The state death tax credit as set forth in 26 U.S.C. § 2010 (c) may not exceed the amount determined under the following table on the federal estate tax:

If the adjusted taxable

The maximum tax credit

Estate is:

shall be:

Not over $90,000

-8/10ths of 1% of the amount by which the adjusted taxable estate exceeds $40,000.

Over $90,000 but not over

$400 plus 1.6% of the excess

$140,000

over $90,000

Over $140,000 but not over

$1,200 plus 2.4% of the excess

$240,000

over $140,000

Over $240,000 but not over

$3,600 plus 3.2% of the excess

$440,000

over $240,000

Over $440,000 but not over

$10,000 plus 4% of the excess

$640,000

over $440,000

Over $640,000 but not over

$18,000 plus 4.8% of the excess

$840,000

over $640,000

Over $840,000 but not over

$27,600 plus 5.6% of the excess

$1,040,000

over $840,000

Over $1,040,000 but not over

$38,800 plus 6.4% of the excess

$1,540,000

over $1,040,000

Over $1,540,000 but not over

$70,800 plus 7.2% of the excess

$2,040,000

over $1,540,000

Over $2,040,000 but not over

$106,800 plus 8% of the excess

$2,540,000

over $2,040,000

Over $2,540,000 but not over

$146,800 plus 8.8% of the

$3,040,000

excess over $2,540,000

Over $3,040,000 but not over

$190,800 plus 9.6% of the

$3,540,000

excess over $3,040,000

Over $3,540,000 but not over

$238,800 plus 10.4% of the

$4,040,000

excess over $3,540,000

Over $4,040,000 but not over

$290,800 plus 11.2% of the

$5,040,000

excess over $4,040,000

Over $5,040,000 but not over

$402,800 plus 12% of the

$6,0...

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