Two things are promised in life: death and taxes.

So when death occurs, you can be sure that taxes follow suit. The amount of taxation depends on the amount of the estate and location. Federal and state taxes can reach a staggering 40%. Luckily, the State of North Carolina does not have a state inheritance tax. But federal estate taxes can still reach 35% of an estate’s value. 

In 2022, the federal estate tax exemption is $12.06 million per person; or double for a married couple. If the entirety of your estate is under the threshold, then your estate is exempt from federal taxation. Those with estates totaling more than the threshold amount can be subject to taxes as high as 35%. That means that a significant portion of the estate will not go to beneficiaries but the federal government.

There are three federal estate planning taxes to familiarize yourself with during the estate planning process. These taxes are estate taxes, gift taxes, and generation-skipping transfer taxes.

1. Estate Taxes

The federal government charges a transfer tax on the value of the cash, securities, and other property transferred to your beneficiaries at the time of your death. These estate taxes occur at graduated rates such that higher assets mean increased taxation.

Assets inherited by a spouse are not subject to the estate tax because of an unlimited marital deduction. An estate with a value of less than $12.06 million is exempt from estate taxation.

2. Gift Taxes

The federal government also sets a transfer tax based on the worth of the property transferred as gifts during a lifetime. In 2022, the annual gift tax exclusion amount is $16,000 per person, per year, or $32,000 for a married couple to any one person. There is no limit to the number of recipients who can receive the annual gift without taxation.

Gifting money for some education and health care costs are also free of gift taxes. Spousal gifts are not subject to gift taxes if the spouse is a U.S. citizen.

3. Generation-Skipping Transfer or GST Taxes

The government created a generation-skipping transfer tax after people tried to get around estate taxation by giving the inheritance to grandchildren. A GST tax permits the federal government to receive a portion of wealth as it transfers between generations.

GST tax may apply if you give money to grandchildren, relatives two or more generations younger, or a non-family member who is 37 years younger. GST taxes for gifts that skip a generation and are above the annual threshold receive the highest federal estate tax rate.

Gift-giving During Your Lifetime Can Decrease Your Taxable Estate

A strategy for reducing estate taxes involves annual gift-giving to potential heirs; this allows for the slow removal of assets from a taxable estate to beneficiaries. Some people pay for healthcare and educational bills each year because they are not subject to taxation.

An Attorney Can Help You With Your Estate Tax Planning Strategy

Many states impose an inheritance tax. It is still crucial to create an estate planning tax strategy with a skilled attorney. An effective strategy will allow beneficiaries to get the most money possible.

You can work with a qualified estate planning attorney in North Carolina today. Contact the Salines-Mondello Law Firm, PC, and schedule your first, fully confidential consultation.