Numerous factors will influence the value of your estate when you die. Your debts will have a direct impact on what you can pass on to your loved ones. Tax obligations can also reduce the value of your estate.
Depending on your employment arrangements, there could be income tax obligations associated with your final tax return. Usually, your executor will prepare that return and pay those taxes. They may also need to file a return and pay income taxes if the estate sells assets and earns income.
More importantly, there could be taxes that affect the overall value of your estate. Will you need to worry about estate taxes as someone who lives in North Carolina and is therefore subject to North Carolina state laws?
There isn’t a state estate tax in North Carolina
North Carolina repealed its state-level estate taxes decades ago. Modern testators do not need to worry about state-level estate taxation. However, they may still be subject to federal estate taxes.
In 2022, the cutoff for estate taxes at the federal level will be just over $12 million. If the combined assets in your estate are worth more than that, the federal government will apply a tax to the total value of the estate before it passes to beneficiaries. If you don’t plan ahead, that tax rate could be as high as 40%.
There are several different strategies that can reduce your risk of estate taxes. These include making strategic gifts to your loved ones while you are still alive or moving major assets into a trust to bypass probate proceedings and estate taxation.
If you don’t plan ahead, your loved ones will pay the price
Estate taxes can significantly diminish how much your loved ones benefit from your estate. If you want to leave behind valuable real estate or perhaps a business to the people that you love, you don’t want a significant portion of those assets going to the government. After all, you already paid tax on those assets at least once in the past.
Learning about your potential liabilities will make it easier for you to create an estate plan that passes as much of your property on to your loved ones as possible.