North Carolina does not impose an estate tax at the state level. But you will need to plan ahead for estate taxes from the federal government.
The good news is federal taxation on estates usually only applies to high-asset situations. The IRS explains the intricacies of how estate taxation works.
Limit
As mentioned, estate taxation usually only occurs for the wealthy. In 2023, the limit was $12,920,000. So, if your estate was worth less than that amount, you owed no estate taxes. Most people will fall under that threshold. However, if you own a business or have a lot of investments, you may reach that limit. It counts not just cash on hand but also the value of your assets.
Deductions
Keep in mind that you also have deductions you can take from your estate to lower the value, and potentially remove liability for federal estate taxes. You can usually reduce your estate by debts, expenses related to the administration of the estate, charitable donations and property your spouse will receive. Sometimes, you can also deduct expenses for a business, and gifts.
Filing
If your estate value makes it eligible for paying estate taxes, your executor or personal representative will have to file taxes for the estate. Form 706 is what he or she will use to file. It includes clear instructions to help the executor figure out the tax owed and the deductions. Just like other taxes, the executor will have to file before a deadline to avoid penalties.
Estate taxes do not usually apply to most estates, but if you have a high value of assets, you need to be sure your executor knows to check into whether these taxes are due to the federal government.
