When you’ve worked hard your whole life to provide a legacy for your heirs, the last thing you want is for the government to place an unfair tax burden on your loved ones. However, estate taxes can generally be avoided with proper planning.
Understanding How Estate Taxes Work
A person’s estate includes their real property as well as cash, stocks, bonds, and other investments. The taxable estate is calculated by deducting expenses such as funeral costs paid out of the estate, debts owed at the time of death, and administrative costs for settling the estate.
As of 2020, federal estate taxes apply when a taxable estate is worth $11.58 million or more. However, estate taxes do not apply when a spouse inherits an estate due to the unlimited marital deduction. Estate taxes only apply when a child, sibling, or other beneficiary inherits the estate.
The vast majority of Americans pay no federal estate tax, either because they have estates worth less than the current tax exemption or because they’ve worked with an estate planning attorney to reduce the value of their taxable estate using strategies such as marital transfers, lifetime gifts to children or grandchildren, charitable transfers, private annuities, or irrevocable life insurance trusts. If your taxable estate is more than the current estate tax exemption, it’s recommended that you contact an estate planning attorney as soon as possible to discuss which tax reduction strategies best fit your needs.
Fifteen states and the District of Columbia have a separate estate tax in addition to the federal estate tax. However, North Carolina does not have a state-level estate tax.
There’s No Need to Worry About Inheritance Taxes
Inheritance taxes are also sometimes discussed as part of the estate planning process. An inheritance tax is a tax paid by people who inherit property from a decedent residing in a state with an inheritance tax on the books. However, only six states currently have inheritance taxes and North Carolina is not one of them. There is no federal inheritance tax.
How Legacy Lawyers Can Help
At Legacy Lawyers, we are committed to helping North Carolina create personalized estate plans that minimize tax liability while providing for the needs of all heirs. Call our office in Wilmington or fill out the contact form on this page to schedule a free 15-minute consultation or review our calendar of upcoming seminars and workshops.