2014 Estate Tax Lawyer Update for Residents of Carteret County, Beaufort, and Morehead City, North Carolina
2014 Estate Tax Lawyer Update for Residents of Carteret County, Beaufort, and Morehead Cty, North Carolina,:
Many of our clients are familiar with the concept of the estate tax. However, many do not fully understand how the tax works. Also, some may not know whether the estate tax applies to their estates. The estate tax, sometimes referred to as the ‘inheritance tax,’ or the ‘death tax,’ is a tax imposed upon the transfer of estate assets from a decedent to the beneficiaries or heirs of the estate. As of January 1, 2014 in North Carolina, the “estate tax” actually now consists of only one level of tax imposed at the federal level as the North Carolina General Assembly eliminated the estate tax on the state level. Generally, the estate tax is a burdensome one, as it imposes a high rate of taxation upon the value of the assets.
The current rate as of January 1, 2014, is Forty Percent (40%) of the net taxable estate. While this may seem high, the rate was actually much higher during much of the twentieth century, hovering in the range Seventy Percent (70%), before being lowered to Fifty-Five Percent (55%) for the majority of the 1980's and 1990's. Still, this recent change reflects an increase from the previous rate of Thirty-Five Percent (35%) which was the lowest rate reached, following steady decreases during the 2000's.
The good news is that these rates apply only to estates where countable assets exceed $5.34 million, which is an increase over the previous exemption amount. Fortunately for those interested in the administration of an estate, this exemption is currently as high as it has ever been. In 2001, this exemption was set at just $675,000. Even within the past few years, it stood at $3.5 million. The way that the exemption works is that it is applied to reduce the taxable estate by this amount, thus leaving only the remaining value subject to the currently applicable rate of Forty Percent (40%).
While it may seem as though clients who do not anticipate an estate in excess of this amount have little to worry about, the volatility of the estate tax counsels us against complacency with respect to the current exemption threshold. While the estate exemption has been increased significantly over the past few years, it may just as easily be decreased. Amid continuing discussion regarding the generation of tax revenue, there is a legitimate concern that Congress could return both the estate exemption and the applicable rate to levels closer to what they have historically enjoyed. The recent increase of the estate tax rate in connection with the so-called ‘fiscal-cliff’ issue is an example of this concern being played out in real life.
In short, there is no way to know what future changes may be in store for the federal estate tax. Even clients whose current net worth is significantly lower than the current threshold should participate in sensible estate planning to stay safely within the exemption range. Not only is it impossible to determine one’s net worth at some future date, but it is also difficult to say whether the exemption threshold will return to prior low levels. Through the use of estate planning techniques, such as the strategic employment of trusts, our clients may obtain significant peace of mind with regard to avoiding or minimizing the impact of the estate tax.