As the saying goes, there are two sure things in life: death and taxes. When you die, the assets and property you leave to heirs may be subject to estate taxes depending on the value of your estate. Planning now for how to reduce potential estate tax liability can help to ensure that your beneficiaries receive more of what you want them to have.

At Charlotte Estate Planning, we deliver the full range of services, from drafting wills and trusts to helping business owners develop succession plans to ensure their companies thrive into the future. Our estate planning attorney in North Carolina can offer information about possible methods to reduce estate tax liability as part of your overall plan.

Please note that attorney Ryan Stump does not give tax advice but can connect you with a tax advisor.

Call (704) 766-8836 to arrange a consultation.

How Do Taxes Affect Your Estate Plan?

Taxes can affect your estate plan in several ways. Here is a breakdown of taxes that can potentially reduce what your beneficiaries inherit.

State and Federal Estate Taxes

North Carolina does not have an estate tax at the state level. The state-levied estate tax was repealed in 2013.

The federal government does levy an estate tax on affluent individuals. As of 2024, the federal estate tax exemption is currently $13.6 million for an individual. (This figure doubles for married couples.) If an estate’s value exceeds this limit, federal estate taxes are owed. However, taxes are only levied on the portion over the exemption limit.

The amount of the federal estate tax exemption can change with changes to the law, so while you may not have exposure today, that may change under any revisions to the federal tax law. It is also adjusted periodically for inflation.

Gift Tax

When you give assets or property to family members, you could trigger the federal gift tax. As of 2024, the annual exclusion for gift taxes is $18,000 per each individual you gift with property. You can make gifts to more than one individual in a given year, so utilizing the annual gift tax exclusion is a great way to reduce estate tax exposure. However, if you give more than this per individual in a given year, it must be reported to the IRS.

Like with estate taxes, North Carolina repealed the state level gift tax years ago.

Generation-Skipping Tax

You can be taxed at high rates for skipping a generation by leaving assets in your estate to your grandchildren rather than your children, for example. The tax is 40% if you exceed the lifetime transfer threshold.

Inheritance Tax

Inheritance taxes are paid by heirs when they inherit assets and property. There is no inheritance tax levied by the state of North Carolina. However, if you inherit property in a different state, their inheritance taxes may come into play.

Strategies for Estate Tax Planning in North Carolina

Estate tax planning is highly complex and depends on each person’s individual situation. Here are some general strategies that may reduce your tax burden and help you pass on more of your assets to your heirs rather than to the IRS.

Set Up a Qualifying Trust

There are different types of trusts that can be set up to reduce estate tax liability, such as:

  • You could create an irrevocable trust, which is funded with assets in your estate that you no longer need access to from a financial perspective. Any assets transferred to an irrevocable trust, if drafted correctly, are no longer included in your estate for estate tax purposes.
  • You could establish an irrevocable life insurance trust if your estate exceeds the federal estate tax threshold. Proceeds from such a trust aren’t subject to federal estate tax and can be used to pay any federal estate tax owed at the time of your death.
  • You could set up a generation-skipping trust so you can leave assets directly to grandchildren—this avoids the assets being taxed twice as they would be if they were first left to your children.
  • Charitable giving trusts in your estate plan can help you support nonprofit organizations that are most important to you while also reducing taxes on your estate. These trusts include charitable lead trusts and charitable remainder trusts that have different criteria for establishing.

There may be other types of qualifying trusts that will be effective for your estate planning situation.

Gift Assets to Heirs Early

To reduce the amount of assets in your estate, consider gifting assets to heirs throughout your lifetime. If you stay below the $18,000 threshold each year (or whatever the exclusion is for the year as it can change), you will not trigger the gift tax. You can gift assets up to the exclusion amount every year, which could significantly affect the value of your taxable estate.

Make Qualified Expenditures  

Medical expenses and educational costs (tuition payments only) are exempt from federal gift tax rules. To qualify, payments must be made directly to the healthcare provider or school. They cannot be made to the person receiving medical care or the student attending school.

Contact An Estate Tax Attorney in North Carolina for Help

Tax liability planning is one part of an effective estate plan. It is also very complicated. Our attorney helps clients put comprehensive estate plans in place to protect the financial interests of clients and their beneficiaries. He can help you develop a well-thought-out estate plan that includes options for limiting estate tax liability.

For specific tax advice, speak with a tax advisor. Our law firm can provide names of North Carolina tax advisors.

Contact Charlotte Estate Planning today by calling (704) 766-8836 or using our online form.