Planning ahead for estate taxes

There are some unique tax considerations to keep in mind when an estate owner in North Carolina passes away. In most cases, an executor or personal representative is named in the will. When one does not exist, they can be appointed by the probate court. This person is responsible not only for distributing the property to beneficiaries but also for dealing with the final tax obligations of the estate.

The term “gross estate” embraces all of the property that the person owned at the time of death. This includes property interests as well as assets owned outright. For example, the gross estate will generally include lifetime transfers or gifts, overseas property, some community property, annuities and joint assets with a right of survivorship. It can even include some proceeds taken from life insurance. In general, the executor will add up the value of all of these assets in addition to some adjustments for taxable gifts. This amount will then be compared to the federal estate tax exemption. If the gross estate is greater than the exemption amount, the executor will need to file IRS form 706, even if no estate taxes are due.

The 2017 tax reform bill made significant changes to the federal estate tax exemption. While in 2017, the exemption was $5,490,000 per person and double for married couples, that amount has increased substantially under the newer law. In 2018, the federal exemption was $11,180,000 per individual and double that for a married couple. The exemption will be modified annually for inflation.

When people consider their assets and the future, they may not consider how to handle taxes after death. An estate planning attorney can also help a client plan for taxation and help them to maximize the amount that they are able to pass on to their beneficiaries.