How to Avoid Estate Taxes With Trust in North Carolina?

North Carolina does not have any estate or inheritance taxes. However, federal estate taxes must be paid to the IRS on money or property inheritance for some estates with a high total net worth. The good news is that experienced estate planning lawyers can help minimize the tax burden on your heirs. This guide explains how to avoid estate taxes with a trust in North Carolina in 2025.

Estate Taxes 101

Estate taxes are a federal tax paid to the IRS out of the total estate before beneficiaries receive their inheritance. Some states also have inheritance taxes, which are paid by the beneficiary when they receive their inheritance, but North Carolina does not have an inheritance tax.

Not all estates require an estate tax. The IRS places a limit on which estates qualify for the federal estate tax. In 2025, that limit is $13.99 million, which means estates whose net worth is less than that amount do not have to pay the federal estate tax. The net worth is based on fair market value, which means what the assets are worth now, as opposed to what the owner paid for them when they purchased them.

The amount left to surviving spouses doesn’t count toward the total, and a surviving spouse does not have to pay estate taxes on anything they inherit. However, when the surviving spouse dies, their beneficiaries may owe estate taxes at that time. It is also possible that a beneficiary can decline an inheritance, and in those cases, they do not have to pay estate taxes because they did not receive the assets.

Avoiding Estate Taxes

While it generally isn’t possible to completely avoid the estate tax, there are ways to minimize the burden. Estate planning is more than just creating a will. An important focus is also protecting assets against taxes and other financial threats. Having protected retirement accounts, utilizing the annual gift tax exclusion rule, and setting up trusts are all ways that can help insulate your estate from high tax burdens.

Kinds of Trusts

There are two main categories of trusts, and each category has several kinds. The first category is revocable trusts, which means the terms of the trust can be changed or the trust can be ended at any time. Typically, revocable trusts don’t have much tax benefit because they can be changed relatively easily. Some kinds of revocable trusts are:

  • Qualified Terminal Interest Property (QTIP) trusts. These are used when someone has divorced and remarried to ensure that both the new spouse and children from the previous marriage properly receive their inheritance.
  • Incentive trusts. These are distributed to beneficiaries when they meet specific criteria laid out in the trust, such as finishing a college degree, getting married, or other expectations.
  • Living trusts. These can be revocable or irrevocable. A living trust names someone to manage assets in the event an individual is unable to, such as disability, and also states how the owner wishes assets to be distributed when they die.

Irrevocable trusts, on the other hand, can’t be changed or ended, although some kinds of amendments are possible in certain situations. Irrevocable trusts are managed by a trustee, and the owner does not have direct access to assets. Assets in many irrevocable trusts are not considered part of the owner’s taxable estate, so they are not subject to estate taxes or the probate process. In many cases, irrevocable trusts can be established by an individual or for a family member.

As mentioned above, living trusts can also be irrevocable, and other common irrevocable trusts include:

  • Testamentary trusts. These are generally created at the same time as a will, and assets are placed into the trust when the person dies.
  • Special needs trusts. These are intended to provide care for disabled people and can sometimes be used in conjunction with programs like Medicare or Medicaid, depending on whether it meets certain conditions.
  • Charitable trusts. These ensure assets are distributed to a charity or nonprofit organization when a person dies.
  • Asset protection trusts. These are established to protect assets from taxes, creditors, and legal claimants. However, there are some limitations, like the individual is still obligated to pay known creditors or pending creditors.

Starting a Trust

If you’re considering establishing a trust to minimize estate taxes, the first step is to consult with an estate planning attorney who’s well-versed in the different kinds of trusts and their uses, processes, and legal requirements. Your lawyer can guide you through the process of deciding which assets will go in the trust, who the beneficiaries are, who the trustee will be, and the other details of the trust. Additionally, they can make sure the paperwork meets all the legal criteria.

FAQs

Q: How Does a Trust Avoid Estate Taxes?

A: A trust avoids estate taxes because assets in some trusts are not subject to the estate tax. However, it’s important to note that not all trusts work this way. In most cases, a revocable trust does not protect assets from the estate tax. A qualified estate planning attorney can help you determine which type of trust is right for you.

Q: How Are Trusts Taxed in North Carolina?

A: How trusts are taxed in North Carolina depends on the type of trust. A revocable trust is usually taxed as part of the trust owner’s regular income. An irrevocable trust generally has its own tax ID and pays taxes on any income it earns, based on the state tax rate.

Q: How Much Can You Inherit in NC Without Paying Taxes?

A: North Carolina does not have a separate estate tax or inheritance tax, so any money or property you inherit is treated like any other income. There are sometimes taxes and fees for other reasons, such as property taxes and probate fees. The federal estate tax is the same in every state.

Q: Should I Put my House in a Trust in North Carolina?

A: In North Carolina, it can sometimes be beneficial to put your house in a trust. Putting your home in a trust can take some burden off your heirs after your death, such as having to pay property taxes while they wait for the probate process. However, it may not be the right option for everyone.

Experienced Estate Trust Lawyer

With 75 years of combined experience, Orsbon and Fenninger, LLP has the knowledge and skill to help you safeguard your property and plans for the future. Our legal team takes the time to understand each client’s needs and develop a practical strategy that will work for that individual’s life and legacy. Contact our office to schedule a consultation and discuss which options are right for you.

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