There are some unique tax considerations to keep in mind when an estate owner in North Carolina passes away. In most cases, an executor or personal representative is named in the will. When one does not exist, they can be appointed by the probate court. This person is responsible not only for distributing the property to beneficiaries but also for dealing with the final tax obligations of the estate.
Those living in North Carolina or any other state have the right to gift up to $11.18 million without any estate tax implication. The exemption amount was increased from around $5 million as per the Tax Cuts and Jobs Act (TCJA). However, the exemption is planned to return to the old limit when 2025 comes to an end. Therefore, it is important to consider how to take advantage of the new rule while anticipating a potential clawback in 2026.
Some North Carolina residents may need to employ some strategies to reduce what their estate will owe in taxes. The current federal exemption is nearly $11.2 million, but for estates worth more than that, there are additional options.
There are an estimated 1,800 estates that will be subject to federal estate taxes after the passage of the Tax Cuts and Jobs Act. The legislation increased the federal estate tax exemption to $11.2 million and $22.4 million for married couples. North Carolina residents could benefit from reviewing their estate plan in the aftermath of such a change to the tax code. It may be especially beneficial for those who have irrevocable life insurance trusts (ILITs).
In 2017, Congress passed legislation that made significant changes to tax law. For people in North Carolina who are creating an estate plan, the major part of that law that may be of interest is the increase in the estate and gift tax exemption to $11.2 million for individuals and $22.4 million for couples. However, this is set to expire at the end of 2025. Furthermore, while planning to save on taxes is a part of legacy planning, it should not be the first priority.
In 2018, residents of North Carolina, along with the rest of the country, will have a $5.6 million federal estate tax exemption. This is an increase from $5.49 million in 2017. Couples may choose to combine their individual exemptions, which means that they have a total exemption of $11.2 million. However, couples will need to tell the IRS that this is what they want to do.
Small business owners in North Carolina may breathe a sigh of relief upon learning that the proposed valuation rules for family businesses will be withdrawn by the Treasury Department. The rules were proposed in August 2016 and would have greatly limited discounts in value that business owners claim in order to pass their businesses on while minimizing their estate and gift taxes.
Couples in North Carolina and throughout America may see their joint federal estate tax exemption climb above $11 million in 2018. It is also likely that the gift tax exemption will increase to $15,000 for 2018, which would mark the first increase since 2013. The federal estate tax exemption is indexed to inflation, and was first set at $5 million in 2011.
With good planning, North Carolina residents may be able to deal with life insurance policies in a manner that minimizes estate tax consequences. Proper planning can help in this regard.
Portability is an estate tax provision that allows married couples to combine their estate tax exemption. That exemption is currently close to $11 million between both spouses, but many executors in North Carolina may not understand that it isn't given automatically. To take advantage of the portability provision, a surviving spouse must tell the IRS that it is being used before they pass away.