Planning for the future can feel overwhelming, especially when you’re thinking about how to protect your assets and take care of your loved ones. A big worry for many North Carolina families is making sure their children aren’t burdened with heavy taxes on the estate they inherit. The good news is that with the right estate planning strategies, you can reduce the tax burden on your family and protect your legacy.
At NC Planning we care about our clients and take pride in the fact that we get to help them protect their loved ones and safeguard their legacy. This article will explain some of the ways you can protect your estate and help your children receive their inheritance with as little tax as possible.
Do You Have to Pay Taxes on an Inherited Estate in North Carolina?
In North Carolina, there’s good news – there is no state inheritance tax. The estate tax was repealed in 2013, meaning that the state no longer requires a tax on inherited assets. However it’s important to understand that federal estate taxes may still apply, especially if you have a high-value estate. In 2024, the federal estate tax only applies to estates worth more than $13.61 million, so if your estate is worth less than that, it will not be taxed by the government.
If you’re concerned about your estate exceeding this, it’s important to begin planning now. Working with an experienced estate planning lawyer can help you keep your estate below the tax limit and lower the taxes your children will have to pay.
How You Can Pass On Your Assets Tax-Free Before You’re Gone
Even though North Carolina doesn’t have an inheritance tax, your children might still have to pay federal estate taxes if your estate is worth more than the federal limit. Here are a few strategies to minimize taxes:
- Non-Taxed Gifts: You can start distributing your estate while you’re still alive by giving up to $18,000 per person each year, without having to pay gift taxes. This is an easy way to lower the size of your estate and help your children at the same time.
- Trusts: Putting your assets in a trust is a great way to protect your estate from extra taxes. A trust can keep your estate out of probate and help avoid some taxes, like capital gains and taxes on retirement funds. Trusts also let you decide when and how your assets are distributed, giving you peace of mind.
Managing Capital Gains Tax on Inherited Property
Inherited property usually doesn’t have capital gains tax right away. The taxes your children might have to pay depends on what they choose to do with the property after they inherit it. For example:
- Selling Right Away: If your children sell the property soon after inheriting it at its current market value, they likely won’t owe capital gains tax.
- Holding Onto the Property: If your children decide to sell the property later and its value has increased, they’ll only pay capital gains tax on the difference between the selling price and the property’s market value at the time they inherited it.
- Making it a Primary Residence: If your children live in the property for at least two of the last five years before selling they might qualify for a capital gains tax exemption, which is up to $500,000 for married couples and $250,000 for individuals.
Filing Taxes After You’re Gone
When the time comes, your children will have to file tax returns. Here’s what they need to know:
- Final Income Tax Returns: This is the standard income tax filing for any earnings up to the date of death, and it’s due by the next Tax Day.
- Estate and Trust Income Tax Return: If the estate or trust earns more than $600 in income after the person’s death, an income tax return for the estate must be filed.
- Federal Estate Tax Return: If your estate is worth more than the federal limit, your children will need to file a federal estate tax return within nine months after you pass away (they can ask for an extra six months if they need it).
Why Work with an Estate Planning Attorney?
Estate planning is about more than just avoiding taxes. It’s about making sure your wishes are honored, and your loved ones are taken care of. An estate planning attorney can help you develop a plan that includes setting up trusts, managing assets, and addressing any tax concerns.
At NC Planning, we’re here to help families handle the sometimes complicated process of estate planning and probate. We’ll work with you to create a plan that protects your assets and provides for your loved ones’ futures. Contact us today to schedule a consultation and get started on your estate planning.
Additional Resources: Smart Asset
