If you’re doing some estate planning — for yourself or a loved one — be aware of a big change coming for Rhode Island’s estate tax.

At issue is a tax that applies to your “estate,” which generally means the value of real estate, investments and certain other assets you leave behind upon your death. Under current law, your estate escapes Rhode Island’s estate tax — also known as the death tax — if its overall value is $675,000 or less.

Starting Jan. 1, 2010, the threshold jumps to $850,000, said Michael F. Canole, the Rhode Island Division of Taxation’s chief of examinations. Thus, fewer estates will wind up subject to the tax.

It’s the result of legislation approved by the General Assembly and signed into law by Governor Carcieri June 30.

The change could bring big savings to your beneficiaries.

For example, if you leave behind an estate valued at $850,000 this year, Rhode Island may claim the first $25,200 through the Rhode Island estate tax. Beginning in 2010, however, an $850,000 estate generally will escape the tax altogether, so beneficiaries will receive $25,200 more.

What about larger estates? In general, under proposed estate-tax rules, estates below $925,000 will see at least some savings, said state Tax Administrator David M. Sullivan. But estates valued at $925,000 or above will be taxed the same as now, Sullivan said.

Why? According to state tax officials, the new law is intended to provide tax relief to smaller-sized estates. Thus, larger-sized estates will see no savings as a result of the new law.

For example, an estate of $1 million will generally have to pay $33,200 in Rhode Island estate tax whether death occurs this year (under the old rules) or next year (under the new rules), said James V. Cambio, state chief of estate tax.

So here’s what all this means to you from a planning perspective, based on the size of your estate:

• $675,000 to $850,000: These estates generally will face no Rhode Island death tax (for those dying on or after Jan. 1, 2010). So make heirs aware that they may inherit up to $25,200 more than planned, said Patricia A. Thompson, former president of the Rhode Island Society of Certified Public Accountants.

Also, consider revising wills, trusts or other such documents that may refer to the old fixed threshold of $675,000 for Rhode Island estate planning purposes, said Providence lawyer David T. Riedel, chairman of the Rhode Island Bar Association’s Committee on Probate and Trust.

• $850,000 to $925,000: Such estates will save some money in Rhode Island death tax. But the larger the size, the smaller the savings, Canole said.

• $925,000 and over: These estates will continue to be hit by Rhode Island’s death tax, said Thompson, tax partner at Piccerelli Gilstein & Co. LLP, a CPA firm in Providence. “The only way [people can] get relief is by reducing their estates” below the $925,000 threshold, she said.

Gifts are one way to reduce the size of your estate, said Bob D. Scharin, senior tax analyst from the Tax & Accounting business of Thomson Reuters in New York.

For example, in general, you may give another person up to $13,000 a year without triggering federal gift-tax consequences, he said. (There is no Rhode Island gift tax.)

You may also avoid federal gift-tax consequences by paying someone’s college tuition directly to the college or someone’s health expenses directly to the hospital or other such provider, Scharin said.

These steps assume you want to reduce the size of your estate.

But taxes are just one factor. There are others, such as how much money you’ll need to live on, said Angela M. Thomson, director of community outreach for the Rhode Island chapter of the Financial Planning Association, a trade group for financial planners and others.

In any event, use the coming change in Rhode Island’s estate tax rules as an opportunity to review all of your estate plans, no matter the size of your estate, said Thomson, a Certified Financial Planner practitioner and principal at Coastal Financial Planning Inc., a fee-only financial planning firm in Lincoln.

For example, make sure you have a will, and that it’s current. Also obtain or review other key documents, such as a durable power of attorney and a document that spells out your wishes regarding medical treatment, she said. And make sure that you have the right people named as beneficiaries for your IRAs, 401(k) accounts and other such retirement-savings plans, she said.

Some other points:

• I use the term “estate” here simply for convenience. But the death tax actually applies to your “net taxable estate,” which generally means all the assets you leave behind, after deducting certain items, such as debts, funeral costs, legal and accounting costs and administrative expenses.

• If you’re married and leave your estate to your spouse, there’s generally no Rhode Island estate tax due upon your death. But if you’re widowed or otherwise single, the tax may be due.

• The Division of Taxation plans to hold a hearing Nov. 10 on proposed changes to estate tax rules, Canole said.

• The new $850,000 threshold will be indexed to rise with inflation each year, starting Jan. 1, 2011.

• Even with the changes, Rhode Island’s threshold remains the lowest in New England, said Riedel, a partner at the Adler, Pollock & Sheehan law firm in Providence. He hopes to have legislation introduced in the next General Assembly session that would have the effect of providing a Rhode Island estate tax reduction for all estates valued at more than $850,000.

• The threshold for the federal estate tax is generally $3.5 million for 2009. The federal estate tax is to be eliminated next year, unless Congress takes some action in the meantime, Scharin said.

moneyline@projo.com