Ben Franklin said, “In this world, nothing is certain but death and taxes,” and he was correct! The tax man cometh even after you are gone. These taxes come in the form of probate, inheritance tax, federal and state estate taxes. Please note that tax laws change frequently, so contact an experienced estate planning attorney or a CPA if you have tax questions about an inheritance or your estate.
Probate is the process in which the authenticity of a last will is certified, assets are gathered and reported, creditors are paid and the remainder is distributed to the beneficiaries. It is s not a “tax” per se, but in North Carolina, the process involves payment of debts and taxes owed. Probate can sometimes be avoided by establishing a Living Trust. If your estate isn’t particularly large or complicated, the state offers simplified “small estate” procedures.
Inheritance Taxes are usually calculated based on benefactor’s relation to the deceased person. For instance, in some states, spouses may be exempt while descendants have to pay. Luckily, most states have done away with the Inheritance Tax and North Carolina is one of them. Currently, the only states that have an inheritance tax laws are Iowa, Kentucky, Maryland, New Jersey and Pennsylvania.
Federal and State Estate Taxes
Unlike an Inheritance Tax, Estate Taxes are based on the total value of the estate – including property, monies and other valuables. This amount is generally determined during probate. If you have a small estate, it is unlikely that Federal Estate Taxes will be need to be paid. The amount changes per year, but in 2014, the threshold for Federal Estate Taxes is $5,340,000.
The good news for North Carolina residents is that there is currently no state estate tax. The only states that have state estate laws are Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New York, Oregon, Rhode Island, Tennessee, Vermont, and Washington. As long as the deceased person does not live in one of these states, the benefactor will NOT have to pay state estate taxes even if the benefactor lives in one of these states.
As in life, you cannot avoid the tax man in death, but you can reduce the amount taxed by giving tax-free gifts to family (federal law allows you to give up $14,000 per year) or reducing the value of your assets by establishing a trust. Establishing a plan for your estate once you are gone can be mentally and emotionally difficult, but the experienced attorneys at Wilson Law PA are here to help you navigate the process. Contact us for a FREE consultation today!