Rhode Island’s estate tax threshold sits near $1.8 million and is indexed annually, which means the irrevocable life insurance trusts on a Rhode Island trust department’s books are solving a live problem rather than a historical one. A retired couple in East Greenwich with a paid-off house, a pension, and an IRA can cross that line without ever having thought of themselves as a taxable estate — and the policy in the ILIT is the liquidity that keeps the house out of a forced sale.
That makes the administration of trust-owned life insurance a working concern in this state rather than a wind-down exercise. This guide is written for the corporate trust officer administering Rhode Island trusts holding policies. It covers Rhode Island’s non-uniform trust framework, how the prudent investor standard applies to a single-policy trust, the three documents that belong in the file every year, how to detect a cost-of-insurance increase, and what a defensible disposition record contains. Pine Lake Life Solutions is an educational resource; it does not purchase policies, and nothing here is legal, tax, or investment advice.
In This Article
- Rhode Island Trust Law: Non-UTC, Chapter 18-15, and Section 34-11-38
- The Prudent Investor Act Applied to a Single Policy
- Three Documents That Have to Be in the File Every Year
- COI Increases and the Carrier Litigation Wave
- Surrender vs. Sell With a $1.8 Million Threshold in Frame
- The Department of Business Regulation and Title 27
- Beneficiary Notice, Municipal Probate, and a Beneficiary in Care
- Frequently Asked Questions
Rhode Island Trust Law: Non-UTC, Chapter 18-15, and Section 34-11-38
Rhode Island has not adopted the Uniform Trust Code. Its fiduciary law is assembled from Title 18 of the Rhode Island General Laws together with provisions elsewhere in the code, and a trust officer should know which statute answers which question:
- R.I. Gen. Laws chapter 18-15 — the Rhode Island Uniform Prudent Investor Act, adopted in the 1990s. This is the source of investment duties: a portfolio standard rather than an asset-by-asset one; the duty to diversify subject to a special-circumstances exception; the duty to review trust assets within a reasonable time after accepting the trusteeship and to make and implement decisions about retaining or disposing of them; and duties of care in selecting, instructing, and monitoring any delegate.
- R.I. Gen. Laws chapter 18-9.2 — the Qualified Dispositions in Trust Act, enacted in 1999. Rhode Island was among the earliest self-settled asset protection trust jurisdictions in the country, a fact most practitioners outside the state do not know.
- R.I. Gen. Laws § 34-11-38 — Rhode Island abolished the rule against perpetuities for trusts, also in 1999, in the circumstances the statute describes including where the trustee holds a power to sell. Rhode Island trusts can therefore run for a very long time.
Confirm the current text of each before it appears in a memo. What the combination means practically is that a Rhode Island trust may hold a universal life contract for decades on a single insured, with the internal mortality charge climbing the whole way — a long exposure in a state whose trust framework is not the one most out-of-state counsel assume.
Rhode Island’s court structure is also genuinely unusual and worth knowing: probate jurisdiction sits in municipal probate courts, one for each city and town, with judges appointed locally rather than in a unified statewide probate system. Trust proceedings and accountings can therefore look quite different in Warwick than in Little Compton, and a trust officer administering across the state should not assume uniform practice.
The Prudent Investor Act Applied to a Single Policy
An ILIT holds one asset, which is on its face the opposite of a diversified portfolio. Chapter 18-15 answers that: a trustee may decline to diversify where it reasonably determines that, because of special circumstances, the purposes of the trust are better served without diversifying. An insurance trust is the textbook special circumstance.
Two conditions attach, and both are usually missing from real files.
First, the determination has to be made. Not assumed from the trust’s name. One paragraph at acceptance recording the trust’s stated purpose, the settlor’s intent that the trust hold and maintain the policy, and the trustee’s evaluation and acceptance of the concentration satisfies it entirely. It takes a page and it is the difference between a defensible concentration and an unexamined one.
Second, it has to be revisited. Circumstances move. A trust funded to create liquidity for a Rhode Island estate tax exposure may no longer face one if the family’s net worth has fallen; a policy now projected to lapse before the insured’s life expectancy is a materially different asset from the one the settlor funded. The concentration is defensible; declining to look at it is not.
The duty that Rhode Island trust departments most often breach without noticing is the one attaching at acceptance: the obligation to review trust property within a reasonable time after accepting the trusteeship and decide whether to retain or dispose of it. A successor trusteeship of a 1997 ILIT arrives with a file, a policy number, and no prompt to look at anything. If no in-force illustration was ordered in the first year, there is an unremediated breach from the date of acceptance, and it will be the first question a beneficiary’s counsel asks.
Where the analysis eventually points toward reconsidering the structure, the trade-offs between maintaining an ILIT-held policy and disposing of it are laid out at life settlements versus ILIT planning. Disposition is one of four options and frequently not the right one — but it is an option the trustee should have considered rather than one it never knew existed.
Three Documents That Have to Be in the File Every Year
Reduce the whole monitoring obligation to three documents and it becomes a task a trust department can actually complete.
One: a current in-force illustration. Requested from the carrier in writing, run at both guaranteed and current assumptions, with a premium solve to a defined target age. It is free. It is the only document that answers whether the policy will still exist when the trust needs it. What it shows and why is discussed at why the in-force illustration matters. The number to extract is the projected lapse age at each assumption set — and then the change from last year’s illustration, which is why the cycle has to be annual rather than occasional.
Two: written confirmation of the address of record. Ask each carrier to confirm the trustee’s current mailing address and servicing contact, in writing, and keep it. This sounds like clerical work and it is the single most consequential control in the file. In Rafert v. Meyer, 290 Neb. 219 (2015), a trustee of an insurance trust failed to provide the carrier with a current address, premium notices went undelivered, and substantial policies lapsed; the Nebraska Supreme Court held a broad exculpatory clause did not shield the trustee from liability for failing basic administrative duties. Not Rhode Island authority, but a precise description of how these losses actually happen. Address failures cluster around mergers, department reorganizations, and officer transitions.
Three: a premium reconciliation. Premiums due against premiums paid for the year, with the no-lapse guarantee status stated explicitly as intact or forfeited. A guarantee voided by a single late or short premium is generally irreversible, and it converts a durable contract into a fragile one without any other visible change.
Add to those three a one-paragraph refreshed concentration determination and a record of any beneficiary communication, and the annual file is complete. Ninety minutes per trust, once a year. Against the exposure on a seven-figure contract that lapses because nobody looked, that is not a close call.
| Item | Rhode Island posture (confirm before relying on it) |
|---|---|
| Trust code | Not a UTC state — fiduciary law assembled from Title 18, R.I. Gen. Laws |
| Prudent investor | Rhode Island Uniform Prudent Investor Act, R.I. Gen. Laws ch. 18-15 |
| Self-settled trusts | Qualified Dispositions in Trust Act, R.I. Gen. Laws ch. 18-9.2 (1999) |
| Perpetuities | RAP abolished for trusts, R.I. Gen. Laws § 34-11-38 (1999) — confirm scope |
| Probate structure | Municipal probate courts, one per city and town — practice is not uniform statewide |
| Insurance regulator | RI Department of Business Regulation, Insurance Division, Cranston |
| Insurance code | R.I. Gen. Laws Title 27; confirm current settlement chapter with DBR |
| State estate tax | Yes — 2025 threshold $1,802,431, indexed annually, rates to 16% |
| State inheritance tax | None |
| State income tax | Yes — top marginal rate 5.99% |
| Medicaid individual resource limit | $4,000 — double the $2,000 standard and the highest in New England; confirm |
| Life insurance face exclusion | $1,500 aggregate face per insured; above that, full cash surrender value counts |
| Skilled nursing cost | Roughly $10,500–$12,000/month semi-private in recent surveys — verify facility rate |
COI Increases and the Carrier Litigation Wave
The mechanism that destroys most trust-owned universal life contracts is the internal monthly cost-of-insurance charge, which is a function of the insured’s attained age and rises steeply after 80. That alone will end a thinly funded contract. Beginning around 2015, several carriers went further and raised non-guaranteed cost-of-insurance rates on entire blocks of in-force universal life policies, producing a substantial wave of class litigation. The largest resolution to date is the Feller v. Transamerica Life Insurance Co. settlement approved in the Central District of California in 2018 at approximately $195 million; other carriers faced comparable actions on named product blocks. Background is at cost-of-insurance increase lawsuits.
The fiduciary difficulty is that a COI increase generates no bill. The premium the trust pays does not change. Account value simply depletes faster, and the first visible symptom is often a lapse notice years later, by which point the options have narrowed to paying substantially more or losing the contract.
Detection, ranked:
- Year-over-year change in projected lapse age. Primary signal. A contract projected to carry to 99 last year and to 90 this year has experienced something material and requires a documented response.
- Account value falling against an unchanged premium. Visible on two consecutive annual statements laid side by side.
- Carrier rate-change correspondence. Sent, and routinely mistaken for marketing. Instruct whoever opens trust department mail to route anything from a life carrier to the responsible officer.
- No-lapse guarantee status. Intact or not, checked annually.
Three responses to a material adverse change are defensible if analyzed — increase funding to restore the original projection, reduce the death benefit to what current funding sustains, or dispose of the contract. Taking no action is also defensible if analyzed and recorded. Taking no action because nobody looked is the only posture with no defense, and it is the most common one in the industry.
One further point: where a policy number appears on a class list in COI litigation, the trust may itself be a class member. That determination belongs to counsel, but noticing that the policy is on the list belongs to the trust officer.
Surrender vs. Sell With a $1.8 Million Threshold in Frame
Rhode Island’s estate tax is the reason the analysis here differs from the same file in a no-estate-tax state.
- Estate tax. Rhode Island applies a credit corresponding to a threshold that is indexed annually for inflation. For 2025 the threshold was $1,802,431, with rates graduating to 16 percent above it. The figure moves every year; confirm the current-year threshold and credit amount with the Rhode Island Division of Taxation rather than carrying forward a prior year’s number.
- Inheritance tax. None.
- Income tax. Rhode Island imposes an individual income tax with a top marginal rate of 5.99 percent, so any federally taxable portion of a disposition generally carries a state layer as well. See Rhode Island life settlement tax treatment.
Because the threshold is low, a Rhode Island ILIT’s liquidity purpose frequently survives — and a trust officer should run the estate projection before concluding that a trust has outlived its design. In many mainland files the honest answer is that the ILIT is obsolete; in Rhode Island that conclusion has to be earned.
Where the trust will not continue funding at the current premium, four options exist and a defensible file considers all four: continue funding; reduce the death benefit or move to a reduced-paid-up posture; surrender for cash value; or dispose of the contract in the regulated secondary market. Three numbers must stay distinct: cash surrender value, a contractual formula net of surrender charges; fair market value, what an informed buyer would pay given the insured’s actual life expectancy, the required premium stream, and the net death benefit; and net death benefit, what the trust collects at maturity after loans. Where health has declined since issue, fair market value can exceed surrender value by a multiple, and the divergence runs one way only, since a buyer will not pay less than surrender value when the owner could simply surrender.
If a market process is run, keep everything: the engagement, the compensation disclosure, every offer received, and every life expectancy report commissioned. Two reports frequently disagree — sometimes by years — and retaining only the favorable one is precisely the appearance a fiduciary should avoid. What these reports are and how they are produced is explained at the life expectancy report.
Three federal provisions belong in a memo to counsel before any transaction: IRC § 2035, pulling a policy back into the gross estate on a transfer by the insured within three years of death; IRC § 101(a)(2), the transfer-for-value rule with exceptions including transfers between grantor trusts under Rev. Rul. 2007-13; and IRC § 6050Y reporting, generating Forms 1099-LS and 1099-SB.
The Department of Business Regulation and Title 27
Rhode Island does not have a standalone insurance department, and out-of-state counsel get this wrong constantly. The regulator is the Rhode Island Department of Business Regulation — DBR — acting through its Insurance Division, based in Cranston. DBR licenses producers, brokers, and settlement providers doing business in the state, and its records are what a trustee checks before permitting any intermediary near a trust-owned contract. Its consumer and licensing functions are summarized at Rhode Island insurance regulator consumer help.
Rhode Island’s insurance law is codified at Title 27 of the Rhode Island General Laws, and life settlement and viatical settlement activity is regulated within that title. We are not publishing a chapter or section number. The provisions have been amended over time, and a fiduciary memo citing a superseded chapter is worse than one citing none. Pull the current chapter from the General Assembly’s statute portal, or call DBR’s Insurance Division and ask which chapter and regulation govern the transaction. Licensing detail is at Rhode Island life settlement licensing.
Four verification steps for the trust department’s written procedure:
- Confirm licensure of both the intermediary and the ultimate purchaser against DBR records. An unlicensed counterparty ends the process.
- Obtain the compensation disclosure in writing. In most jurisdictions a settlement broker owes a duty to the policy owner rather than to the buyer, and the commission is disclosable. A trustee that cannot state what the intermediary was paid has an incomplete file and an obvious cross-examination problem.
- Calendar the statutory rescission window that runs after closing, confirming its length against Rhode Island’s current statute rather than borrowing a Massachusetts or Connecticut rule.
- Confirm provenance and insurable interest at inception. A contract with a suspect origin raises stranger-originated life insurance questions the trust should not inherit.
And one absolute rule: no one in the department accepts compensation, referral fees, gifts, or anything else of value from an intermediary in connection with a trust-owned transaction. Rhode Island’s professional community is small enough that this would not stay quiet for a week, and it converts a defensible decision into an indefensible one regardless of the outcome.
Beneficiary Notice, Municipal Probate, and a Beneficiary in Care
Beneficiaries hold no veto over a trustee’s decision about a trust-owned policy — the trust owns the contract and the trustee holds the powers. But a remainder beneficiary who first learns of a disposition from an accounting will litigate the point for years, and in a state where the accounting may be reviewed by a municipal probate court in the beneficiary’s own town, the dispute becomes local very quickly. Notify in advance, document the response, proceed.
What should be communicated: that the trust holds a policy at all, with carrier, face amount, and premium; any material adverse change in the policy’s projected viability; any contemplated change of course, before it happens; and any funding shortfall, because the beneficiaries are frequently the people willing to fund a premium the settlor has stopped paying. Where minor or unborn beneficiaries are involved, discuss representation mechanics with counsel before the transaction rather than after.
Rhode Island trust departments increasingly administer trusts whose current beneficiary is elderly and may need institutional care. Three figures matter at that point, and two of them differ from the national default:
- Individual countable resource limit: $4,000. Rhode Island’s aged, blind, and disabled limit is double the $2,000 standard most states apply and the highest in New England. Confirm with the Executive Office of Health and Human Services; standards are collected at Rhode Island Medicaid asset and income limits.
- Life insurance exclusion: $1,500 of aggregate face value per insured, above which the entire cash surrender value counts. Two $900 burial policies are $1,800 of face and a fully countable cash value.
- Cost of care: Rhode Island semi-private skilled nursing has run roughly $10,500 to $12,000 per month in recent surveys; verify a specific facility’s rate.
The distinction a trust officer must never blur is between a policy owned by the trust and a policy the beneficiary owns personally. The former is generally not the beneficiary’s resource; the latter generally is. Where a supplemental or special needs trust is involved, distributions and asset ownership interact with eligibility in ways that require specialist counsel — route it out. The elder law view of the same file is at the Rhode Island elder law attorney guide.
Finally, keep the negative recommendation with the same care as the positive one. In a meaningful share of files the right answer is to keep funding the policy, and a documented decision not to sell is what makes a decision to sell credible in the files where the trustee makes it.
Frequently Asked Questions
Which Rhode Island statute governs a trustee’s investment conduct?
The Rhode Island Uniform Prudent Investor Act at R.I. Gen. Laws chapter 18-15. Rhode Island has not adopted the Uniform Trust Code, so its fiduciary law is assembled from Title 18 together with provisions elsewhere — including chapter 18-9.2 for self-settled trusts and section 34-11-38, which abolished the rule against perpetuities for trusts in 1999. Confirm current text before citing.
Why do Rhode Island ILITs still have a job?
Because Rhode Island’s estate tax threshold is low and indexed annually — $1,802,431 for 2025, with rates to 16 percent above it. A retired couple with a paid-off house, a pension, and an IRA can cross it without ever thinking of themselves as a taxable estate. Run the estate projection before concluding a trust has outlived its design; in this state that conclusion has to be earned.
What are the three documents that must be in the annual file?
A current in-force illustration at both guaranteed and current assumptions with a premium solve; written confirmation from the carrier of the trustee’s address of record and servicing contact; and a premium reconciliation stating whether any no-lapse guarantee remains intact. Add a refreshed concentration paragraph and a record of beneficiary communication and the file is complete.
How does a cost-of-insurance increase go undetected for years?
Because it produces no bill. The premium the trust pays does not change; the account value simply depletes faster, and the first visible symptom is a lapse notice years later. Detection comes from comparing the projected lapse age across consecutive in-force illustrations, from account value falling against an unchanged premium, and from carrier rate-change notices that look like marketing.
Is Rhode Island’s Medicaid asset limit really $4,000?
Rhode Island’s individual countable resource limit for aged, blind, and disabled Medicaid has been $4,000 — double the standard most states use and the highest in New England. Confirm the current figure with EOHHS. Separately, life insurance is excluded only where aggregate face value across all policies on the insured is at or below $1,500, above which the full cash surrender value counts.
Should we keep both life expectancy reports if they disagree?
Yes, and it is not a close question. Two reports frequently differ, sometimes by years. Retaining only the favorable one is precisely the appearance a fiduciary should avoid, and a beneficiary’s counsel will find out that a second report existed. Keep the engagement, the compensation disclosure, every offer received, and every report commissioned.
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Related Reading
- Life Settlement Vs Ilit Planning
- In Force Illustration Why It Matters
- Cost Of Insurance Increase Lawsuit
- What Is A Life Expectancy Report
- Rhode Island Insurance Department Consumer Help
- Life Settlement Licensing Rhode Island
- Life Settlement Taxes Rhode Island
- Rhode Island Medicaid Asset Income Limits
- Elder Law Attorney Life Settlement Guide Rhode Island
Pine Lake Life Solutions does not purchase life insurance policies and does not provide legal, tax, or investment advice. Information provided is for educational purposes only. Eligibility for any option, including life settlements, is not guaranteed and depends on individual circumstances, policy terms, underwriting, and market conditions. Consult independent legal, tax, or financial professionals before making decisions regarding a life insurance policy.