Estate Planning in North Carolina: What You Need to Know
If you live in North Carolina, thoughtful estate planning is essential to make sure your assets are distributed according to your wishes and to minimize the tax burden on your loved ones. That means creating a will, thinking about trusts, and understanding the tax implications of your decisions.
The term “death tax” often comes up in conversations about estate planning, but what does it really mean? It’s frequently used to describe estate and inheritance taxes, which can be confusing to navigate. North Carolina has specific laws concerning these taxes, so it’s important to understand the current rules.
This guide will give you a comprehensive overview of estate and inheritance taxes in North Carolina, focusing on how to minimize what your heirs might owe and ensure a smooth transfer of your assets. So, is there an NC death tax? Read on to find out.
Estate and inheritance taxes in North Carolina
Do you have questions about the estate tax or the inheritance tax in North Carolina? Here’s a quick look at the current situation.
North Carolina estate tax: A thing of the past
North Carolina doesn’t have an estate tax. The state’s estate tax was repealed in July 2013, making North Carolina an attractive location for estate planning, as compared to states that still have an estate tax.
In many ways, the repeal of the estate tax has simplified estate planning for North Carolina residents. However, it’s important to keep in mind that federal estate taxes may still apply to your estate.
No inheritance tax in North Carolina
An inheritance tax is a tax on the people who inherit assets from an estate.
North Carolina does not have an inheritance tax, so beneficiaries don’t have to pay taxes on assets they inherit in North Carolina.
The Federal Estate Tax: What North Carolina Residents Need to Know
Even though North Carolina doesn’t have an estate tax, your estate may still be subject to the federal estate tax. Here’s what you need to know.
Federal Estate Tax Thresholds
The federal estate tax applies to estates above a certain value, but this threshold changes periodically.
For 2024, the federal estate tax exemption is $13.61 million per person. This means that if your estate is valued at less than $13.61 million, it won’t be subject to the federal estate tax.
For 2025, the federal estate tax exemption is $13.99 million per person.
However, the exemption is slated to drop in 2026 to an estimated $7.15 million. It’s important to stay up-to-date on these changes, as they can significantly affect your estate planning.
Federal Estate Tax Rate
The federal estate tax rate is 40%. This rate applies to the portion of your estate that exceeds the exemption amount.
Example of Federal Estate Tax Calculation
Let’s say your estate is valued at $18 million. With a $13.99 million exemption, the taxable portion of your estate would be $4.01 million.
At a 40% tax rate, the estate tax liability would be $1.604 million.
Strategies to Minimize Estate Taxes in North Carolina
Even though North Carolina doesn’t have an estate tax, your estate may still be subject to federal estate taxes. Here are a few strategies that may help you minimize the tax burden.
Gifting Strategies
One way to reduce the size of your estate is to gift some of your assets while you’re still alive. There are a couple of ways to go about this.
Annual Gift Tax Exclusion
The IRS lets you give a certain amount of money away each year without having to pay a gift tax. In 2024, that amount is \$18,000 per person. That means you can give \$18,000 to as many people as you want each year, and none of those gifts will be taxed.
Lifetime Gifting
You can also gift assets to a trust, using your lifetime gift tax exemption. This moves the assets out of your estate and can also shift any future appreciation in value out of your estate as well. Strategic gifting can significantly lower the taxable value of your estate when the time comes.
Leveraging Trusts
Trusts can be a powerful tool for estate planning. They can help you avoid probate and potentially reduce taxes.
Types of Trusts
There are many different types of trusts, each with its own unique features and benefits. Some common types of trusts include:
- Grantor Retained Annuity Trusts (GRATs)
- Crummey Trusts
- Irrevocable Life Insurance Trusts (ILITs)
- Intentionally Defective Grantor Trusts (IDGTs)
- Spousal Lifetime Access Trusts (SLATs)
Benefits of Trusts
Trusts can provide asset protection, control the timing of distributions, and minimize taxes. The best type of trust for you will depend on your individual circumstances and estate planning goals.
Other Estate Planning Tools
Charitable Giving
Consider making charitable donations as part of your estate plan. Charitable Lead Annuity Trusts (CLATs) can provide income to a charity for a period of time, with the remainder going to your beneficiaries.
Probate, Intestacy, and Wills in North Carolina
Even though North Carolina doesn’t have a state-level estate tax, it’s important to understand the basics of probate, wills, and intestate succession.
The Probate Process
Probate is the court-supervised legal process of settling an estate. Once an estate goes through probate, it becomes a public record. Probate can be costly, potentially eating up 3% to 7% or more of the estate’s value.
Trusts are a common way to avoid probate. Careful estate planning can help you streamline the probate process or avoid it completely.
Dying Intestate (Without a Will)
Dying intestate, or without a will, can make the probate process more difficult. Intestacy can lead to family squabbles and delays in distributing assets.
A will simplifies probate by clearly stating your wishes. A will ensures that your assets will be distributed in line with your intentions and desires.
The Bottom Line
Estate planning can be complicated, involving a maze of legal and financial considerations.
That’s why it’s so important to seek professional estate planning advice. An experienced attorney can give you personalized guidance and help you create a comprehensive plan that fits your unique needs and goals.
By planning ahead and clearly documenting your wishes, you can minimize tax burdens, ensure your assets are distributed according to your desires, and give yourself and your loved ones peace of mind, knowing you’ve taken care of the future.