Residents of North Carolina are fortunate to have no estate tax (the so-called “death tax”) enforced by the state upon their deaths. However, if a North Carolina resident passes away with an estate of a certain size, federal gift and estate taxes could be assessed. Each year, the Internal Revenue Service (“IRS”) updates the threshold limits that trigger federal estate and gift taxes, and the IRS recently announced the 2018 threshold limits. In general terms, these amounts are adjusted for inflation.
Currently, federal estate and gift taxes are assessed for an individual’s estate of $5.49 million dollars or greater. Similarly, an estate and gift tax is currently assessed for a married couple’s estate of $10.98 million or greater if they both die in the same year. These figures can be affected by whether the individuals made large gifts and other factors. However, in simple terms, these figures will generally trigger federal gift and estate taxes for 2017.
The IRS has increased these amounts for 2018. In 2018, federal gift and estate taxes will be assessed on a single person’s estate of $5.6 million or more and for a married couple’s estate of $11.2 million or more if the spouses die in the same year. This means that an individual can leave $5.6 million to heirs and pay no federal estate or gift taxes, and a married couple can shield $11.2 million from estate and gift tax liability. For married couples, the 2018 rules for portability have not changed and still require a portability election on the estate tax return of the first spouse to die. The new 2018 figures will also apply to generation-skipping tax thresholds, so that an individual or married couple will not incur additional tax liability for leaving up to the threshold amounts in trust for grandchildren or later generations.
Additionally, the IRS has increased the gift tax liability to $15,000 per year. For 2018, a person can gift up to $15,000 to another person in one year without incurring a gift tax. This is an increase from the amount of $14,000, which has been in effect since 2013. The rules have not changed in that this gift amount of $15,000 can be doubled for married couples. In other words, a couple can give twice the amount to each child and could add in-laws, grandchildren, and others to the recipient list. As a reminder, these kinds of gifts are not prohibited, the gifts greater than $15,000 simply require a gift tax return.
While these new changes will not affect every household in North Carolina, the adjusted numbers offer some people more flexibility in estate planning and in making gifts.