What You Should Know About Estate Taxes

Most of us want the property and assets that we accumulate during our lifetimes to go to those we care about or organizations that we value upon our deaths. Unfortunately, even those with the best of intentions could end up leaving less than they hoped to loved ones if they fail to consider how taxes could impact the distribution of their assets. To ensure that you and your family are able to make well-informed decisions about your own estate and the conveyance of your assets to heirs and beneficiaries, please contact an experienced Raleigh, NC estate planning lawyer who is well-versed in both state and federal tax law.

What are Estate Taxes?

The estate tax is a federal tax on a person’s right to transfer property to beneficiaries upon his or her death. The application of the estate tax requires the accounting of the value of all of a person’s assets or ownership interests, including:

• Cash and securities;
• Real estate;
• Insurance policies;
• Trusts;
• Annuities; and
• Business interests.

When making these calculations, the IRS looks to the fair market value of the assets in question, which may not be the same as the amount that a person paid for them or their value at the time they were acquired. Once the gross estate has been accounted for, taxpayers can apply certain deductions, including those for mortgages and debts, estate administration expenses, or assets left to a surviving spouse or charity. Finally, when the net amount of an estate is calculated, the IRS will add the value of lifetime taxable gifts to that number, at which point, a certain percentage (based on the party’s income and size of the estate) will be applied to the estate, resulting in the tax obligation.

Who Has to Pay Estate Taxes?

Although North Carolina doesn’t have its own estate, inheritance, or gift taxes, residents must still pay the estate tax required by federal law. Often referred to as a death tax, estate taxes are levied against a decedent’s estate before the assets are transferred to designated heirs. For instance, the Tax Cuts and Jobs Act (TCJA), which went into effect last year, increased the unified lifetime gift and estate tax exemption to $11.4 million for individuals and $22.8 million for couples. This  means that individuals can leave up to $11.4 million in assets to their heirs without triggering estate or gift taxes. Couples, on the other hand, can transfer twice as much without being obligated to pay an estate tax.

Reducing Your Estate Tax Obligation

North Carolina residents who want to reduce their estate tax liability should consider using certain gifting strategies to shift assets to beneficiaries or charities. The annual gift exclusion of $15,000, for example, allows taxpayers to give up to $15,000 a year to as many people as they wish without affecting their lifetime exemption. This means that individuals can gradually pass on their estate by giving yearly gifts, which in turn reduces the value of the estate that will be subject to taxation upon the property owner’s death. Lifetime gifts that go beyond the annual exclusion amount, however, will count towards the $11.4 million when calculating the worth of the remaining estate.

Assets that are left to a surviving spouse or to a federally recognized charity are not generally subject to estate taxes. Furthermore, after the death of their partner, surviving spouses can apply that individual’s unused portion of the gift and estate tax exemption to their own estate.

Contact Our Office Today

If you have questions about how to avoid estate tax obligations through careful planning, please contact the experienced estate planning lawyers at Howard, Stallings, From, Atkins, Angell & Davis, P.A. today. We can be reached at our office by calling 919-821-7700 or via online message.