The Truth About Death Taxes: Why 99% of North Carolina Families Aren’t Affected

When a person dies, their estate generally must pass through probate. Probate is the court-supervised process of validating the deceased person’s Will, appointing a personal representative of the estate, paying debts and taxes, and distributing remaining assets to the deceased person’s heirs and beneficiaries. Most taxes are considered high-priority debts, meaning they are paid first out of available estate assets. Consequently, failure to consider taxes as part of your estate plan can substantially impact the amount of money available to pass on to your intended heirs and beneficiaries.

A comprehensive estate plan should account for the orderly transfer of assets, minimize your tax burden, and safeguard a legacy you can pass on to future generations.

Why Is It Important to Consider Taxes As Part of an Estate Plan?

All estates are potentially subject to federal and state gift and estate tax laws. Without proper planning, a significant portion of your wealth could be lost to tax obligations. Addressing tax issues as part of your estate plan ensures your wishes will be carried out as you intended. Nonetheless, 99% of families in North Carolina are not impacted by death taxes.

Understanding Death Taxes in North Carolina

Before delving into why 99% of North Carolina families are not affected by death taxes, it is important to understand which taxes potentially apply. An inheritance tax is levied on a person who inherits assets or property. An estate tax is imposed on the deceased person’s estate before assets are distributed to heirs or beneficiaries. Importantly, the State of North Carolina does not impose an inheritance tax or an estate tax. However, federal taxes could still apply.

No Estate Tax in North Carolina

North Carolina repealed its state estate tax in 2013. Previously, the lifetime exclusion was set at $5 million, adjusted annually for inflation, as part of the American Taxpayer Relief Act (ARTA). North Carolina repealed its state estate tax when ARTA was passed. Therefore, North Carolina residents have not needed to worry about state estate taxes for estates admitted to probate after 2013.

All Taxpayers Receive a $15 Million Lifetime Federal Exemption

Federal estate taxes are levied at a rate of 40% of the combined value of all lifetime gifts made by the deceased person plus the value of all assets owned by the deceased person at the time of their death. However, all taxpayers are entitled to the lifetime exclusion from federal gift and estate taxes. Beginning on January 1, 2026, the basic exclusion amount for estate, gift, and generation-skipping transfer (GST) tax is $15 million per person. This amount is expected to increase as it will receive automatic inflation adjustments.

Most North Carolina Families Have Little Estate Tax Exposure

Most families in North Carolina risk little exposure to federal or state estate or inheritance taxes. North Carolina repealed its state estate tax in 2013. Most families in North Carolina will owe nothing to the state when a loved one passes away.

The federal estate tax only applies to estates that exceed the exemption amount. The exemption amount applies individually, meaning a married couple in North Carolina could shield up to $30 million under the federal estate tax exemption.

Finally, even though some states impose an inheritance tax that is paid by the recipient of an inheritance, North Carolina does not. This means beneficiaries receive their inheritance without any state-level tax consequences based on the transfer alone.

Other Taxes on Inherited Assets

While North Carolina residents are not subject to state inheritance or estate taxes and the federal lifetime exemption is $15 million per person, other taxes may still apply. For example, income generated from inherited assets, such as dividends or rental income, is subject to state and federal income taxes. The sale of inherited property could trigger capital gains tax based on the property’s appreciation since the death of the original owner.

Why Estate Planning Still Matters

Even though most North Carolina families will not be impacted by federal or state estate tax liability, estate planning remains an important consideration. A well-crafted estate plan ensures that your wishes will be carried out and that your wealth is passed on to the heirs and beneficiaries you intend.

In addition, you can use your estate plan to designate a guardian for any minor children, to avoid probate, and to provide end-of-life instructions about medical care and treatment you do or do not wish to receive. Equally important, a well-crafted estate plan will provide for your surviving spouse and children, and can keep peace in the family by clearly articulating how your assets are to be distributed.

Contact an Estate Planning Attorney Today

The estate planning attorney team at Carolina Tax, Trusts & Estates, a Department of Van Camp, Meacham & Newman, can craft a tailored estate plan to minimize tax liability and protect your family’s future. We can coordinate with other professionals to amplify the success of your plan and create a holistic approach to safeguard your wealth. Contact us today to schedule a confidential consultation to discuss your situation and how we can assist you.