You may want to help your loved ones pay medical expenses, college tuition, and many other things. However, you may worry about estate and inheritance taxes. Let’s look at how to give now and leave a legacy later without paying unexpected expenses and estate or inheritance taxes in NC.

Annual Gift Tax Exclusion

For 2022, the annual exclusion is $16,000. Gifts of less than $16,000 per year per individual are not taxed. If you are planning your estate, you can also pay for certain non-taxable expenses for children or grandchildren, such as tuition for college or medical bills for your loved ones.

If you have a sizeable estate, you can reduce the size of your estate year by year by giving non-taxable amounts of money and gifts to your loved ones.

Inheritance Tax in North Carolina

There is no inheritance tax in N.C. However, there are sometimes taxes for other reasons. These are some of the taxes you may need to consider for your heirs.

IRA’s that distribute large amounts of income each year according to the new 10-year payout rule may cause heirs to pay taxes on the distributions
Capital gains taxes on some types of trusts.
Heirs may also pay taxes on any jointly owned property they wish to sell because it will not step up in basis when you pass away. Instead, your heir will face taxes on the massive increase in value if the property has appreciated since you first bought it.
Capital gains tax rate on your heir’s profit when selling an inheritance later. For example, if your father leaves you a stock portfolio worth $200,000 on the day he died, and you sell it all for $350,000 two years later, you might owe capital gains tax on the $150,000 gain. (1)

When you work with your asset protection attorney, they can help you avoid financial traps for your heirs. Every year, laws change and what used to be true is no longer correct. That’s why planning your legacy with an experienced asset protection attorney makes sense.

Avoid Probate to Leave More for Your Loved Ones

After you die, your gross estate will go through a long process known as probate if the estate is worth more than $20,000 as an individual or $30,000 with a spouse.

Your executor or the administrator of your estate inventories your assets after your death, and then it becomes public record. Others can see and understand what your estate is worth.

In probate court, the estate pays lawyer and court fees. According to Investopedia, “Probate can easily cost from 3% to 7% or more of the total estate value.” In addition, your estate may pay the administrator for their efforts. Creditors take a chunk, and if there are disputes among family, attorneys and court fees take even more.

Your administrator then pays your creditors and income taxes and any estate tax. If there are no will contestations or family disputes, your estate then gives inheritances to your heirs. Probate is an expensive process that your estate can entirely avoid with the proper planning.

You can avoid probate and keep inheritance amounts private by opening a trust. Your attorney can help you set one up to accomplish many financial goals, including avoiding probate.

Estate Taxes (Death Tax) in North Carolina

Some states still charge an Estate Tax (Death Tax), but North Carolina does not have an estate tax and hasn’t since 2013.

The Federal laws are different, though. If your estate is worth more than 11.4 million, you must pay the Federal Estate Tax (Death Tax). This Federal tax is on the gross value of your estate and is due nine months after your death. However, you may leave your property and assets to your spouse without federal estate tax.

Individual Income Tax

Your Federal and North Carolina income taxes are due by Tax Day the year following your death. According to the IRS, “All income up to the date of death must be reported and all credits and deductions to which the decedent is entitled may be claimed.” Your estate administrator is responsible for this duty.

Estate Income Tax

Due by Apr 15, the year following your death, this is a tax only for estates that generate more than $600 in annual gross income on their own. In this case, your income tax and your estate’s income tax are separate. Most people don’t owe estate income tax.

Trust Income Tax

Federal taxes on any income brought in by a trust are due by Apr 15 of the year following death. Trusts file Form 1041, U.S. Income Tax Return for Estates and Trusts, each year that the trust has $600 in income

Trusts

Trusts are a legal framework that owns property for you, shielding it from personal liability and other threats. Trusts can

Help an estate pay less in taxes
Avoid probate expenses
Prevent heirs from having to pay capital gains taxes
Prevent the new retirement fund distribution taxes

Planning using trusts to meet your retirement and inheritance goals is intelligent and not complicated with the help of an asset strategy and planning attorney.

Consult With an Asset Protection Attorney

When you do estate planning, you want to avoid any unnecessary or unexpected expenses so that your loved ones can receive the total amount you intend for them to have. At Vail Gardner Law, we can help you plan your legacy to minimize inheritance taxes, probate costs, and other expenses. We understand that inheritance tax laws are subject to change, so we keep up with the latest information.

Give us a call today to schedule a consultation and start protecting your loved ones and your legacy.

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