The estate tax in North Carolina is a levy on the assets of a deceased person. In most cases, the tax applies to the balance of an individual’s estate after outstanding debts and final expenses are paid. The estate tax can be a major financial burden for heirs, who may need to sell assets or take out loans to pay the tax bill. In many cases, family members must delay distributions from an estate in order to cover the cost of the tax.
In many cases, the tax is unavoidable and can lead to difficult decisions about how to dispose of a loved one’s estate. Here are some tips on navigating the challenges that are often associated with estate taxes in North Carolina.
How Much Are Estate Taxes?
In North Carolina, the estate tax was eliminated in 2013. So, you do not owe any estate taxes to the state. You do, however, need to pay some taxes to the federal government if the estate is valued at over $12.06 million. While this value is often adjusted for inflation every year, the federal estate tax exemption is $12.06 million in 2022. The tax rate is about 40%.
However, there are some exemptions from the federal estate tax, for example, if the estate was given as a gift during the estate owner’s lifetime or if the estate was placed under the care of a trust. These are aspects of estate planning that might need to be discussed with an estate planning attorney. The attorney can help you to develop a strategy that best suits your needs.
Reducing Liability for Estate Taxes
As we just mentioned above, individuals looking to reduce their liability for estate taxes may want to consider creating a trust. A trust can be used to hold property. This will not only reduce the taxable estate, but the trust will also help to manage the property and any income it generates in a tax-efficient manner. Trusts can also help protect assets from legal judgments and creditors. In addition, trusts can be used to provide for beneficiaries in the event of the settlor’s death.
Gifting property is also another way that can help reduce the amount of federal estate tax owed on a person’s estate after they die. The IRS allows individuals to give away some amount without having to pay any gift taxes. This amount is known as the “exclusion amount.” Gifts that exceed the exclusion amount are subject to a gift tax at a rate of up to 40%.
However, there are ways to give away more than the exclusion amount without having to pay the gift tax. One way is through a technique known as “gift splitting.” This allows spouses to split their combined gift exclusion amount between them. This means that each spouse can give away up to a bigger gift without having to pay any gift taxes.
Reviewing Beneficiary Designations
A beneficiary designation is a legal document that states who will receive your property after you die. It is important to review your beneficiary designations regularly to ensure that they reflect your current wishes. For example, if you have named someone as a beneficiary who is no longer alive, or if the property you want to leave to them has been sold, you will need to update your designation. Otherwise, your wishes may not be carried out after your death.
Planning Ahead To Minimize Estate Tax Liability
Estate taxes can be a significant burden on heirs, particularly if the estate is large. However, as you have seen, there are a number of action steps that can be taken to minimize or avoid estate tax liability. However, just knowing what to do is not enough, you need to take action.
One of the most important things you can do is to plan ahead. Start by reviewing your assets and liabilities and estimating the value of your estate. If you have a spouse or children, consider how they will be affected financially if something happens to you.
Next, you take steps to make provisions for transferring ownership of assets to your loved ones during your lifetime or consider setting up a trust as a way to reduce your taxable estate.
Minimizing estate tax liability is a complex subject, and it’s important to have an experienced team to help. Wilson Ratledge has helped numerous families create a plan that will minimize your estate tax liability and ensure that your loved ones are taken care of after you’re gone. Contact us today to schedule a consultation!