An important part of the estate planning process in North Carolina involves recognizing those opportunities to preserve assets. Some pending expenses, however, may seem inevitable. You might reasonably list estate taxes in this category.
Yet is that true? North Carolina repealed its estate tax back in 2013, meaning that the only potential tax liability your estate may face comes from the federal level. However, opportunities exist for you to potentially avoid that expense, as well.
The 2021 federal estate tax exemption
Federal lawmakers set an estate tax exemption every year. According to information shared by SmartAsset.com, the federal estate tax exemption threshold for 2021 is $11.7 million. That means that as long as the total taxable value of your estate comes in under that amount, it will not be subject to tax.
Keep in mind that your exemption only applies to your individual estate. Your individual assets may not exceed the threshold, but should you leave a significant portion to your spouse, their assets may. Fortunately, a method exists for you to avoid inadvertently pushing your estate above the exemption threshold.
Estate tax portability
Portability refers to the sharing of tax benefits between eligible parties. In terms of estate taxes, spouses may share exemptions. By filing an estate tax return electing portability the same year you die, your spouse claims your unused exemption (your spouse must file the return within nine months of your death).
In fact, you may use portability to effectively double your spouse’s exemption. By leaving your entire estate to your spouse, those assets already pass on tax-free thanks to the unlimited marital deduction. This preserves your entire estate tax exemption, which extends your spouse’s exemption to $23.4 million.