In the discussion, Cecil Harvell explained that estate tax applies only to estates exceeding $14 million as of 2025, with an annual gift tax exclusion of $19,000 per person, which can be doubled if both spouses participate. He emphasized the importance of gifting and legal structures like trusts, LLCs, and corporations to manage estate control, mitigate taxes, and protect beneficiaries, especially those with special needs or in complex family situations. The conversation highlighted the sustainability of trusts through designated alternates and legal provisions to ensure long-term management and security of assets for heirs.

Estate Tax Threshold and Overview

• The federal estate tax applies only to estates valued over approximately $14 million as of 2025. Estates below this threshold are not subject to estate tax. This threshold is under discussion in Congress and may change in the future. [02:20]

• The valuation of the estate considers all assets, including life insurance policies, retirement accounts, real estate, boats, cars, and other valuables. Everything owned by the decedent is included in the calculation. [19:30]

Gifting Exclusions and Annual Limits

• The current annual gift tax exclusion amount is $19,000 per person. This means an individual can gift up to $19,000 per year to each recipient without incurring gift tax. The exclusion can effectively double for married couples, allowing $38,000 per recipient per year. [08:10]

• Gifting can involve monetary assets, stocks, bonds, property, or other valuables. It is an important estate planning tool to reduce the taxable estate and transfer wealth efficiently to the next generation. [08:55]

• Over a multi-year period, such as five years, the accumulation of gifting at these exclusion levels can significantly reduce the size of the taxable estate. [26:40]

Gifting and Management Control in Family Businesses

• Gifting can be used strategically to allocate control of family businesses or assets to specific heirs, such as children or grandchildren who are involved in managing the business. This may help centralize management while maintaining fairness among family members. [11:50]

• Legal structures used for this purpose include limited liability companies (LLCs), corporations with voting and non-voting stock, and trusts with trustees managing the assets. Different classes of membership or shares can give certain heirs greater control. [31:20]

• The valuation of gifted business interests is essential; gifting often involves transferring membership interests or shares incrementally using the annual exclusion amount. [30:00]

Responsibilities and Tax Implications for Gift Recipients

• Recipients of gifts, such as grandchildren receiving $19,000 gifts, generally have no tax liability on the gift itself; the Internal Revenue Service collects taxes, if any, from the giver at the estate or gift level. Recipients receive the net amount after taxes are accounted for. [28:00]

• Concerns about tax obligations upon inheritance are common, but taxes are paid by the estate before distributions. Recipients are typically not responsible for paying tax on the amount inherited. [28:45]

Addressing Special Situations: Incapacitated or Vulnerable Beneficiaries

• In cases where a child or beneficiary is unable to manage their inheritance due to disability, addiction, or other challenges, trusts can be established to hold and manage assets on their behalf. [45:20]

• Trusts can also protect inherited assets from potential issues such as divorce by shielding them from marital property claims, ensuring inheritance remains within the family. [46:50]

Trust Design for Long-Term Sustainability

• Trust documents are designed with provisions for sustainability and longevity, including naming multiple trustees and formulas for appointing alternates if the original trustees are no longer able to serve. This ensures continuous management of the trust assets over time. [50:15]

• This planning addresses potential changes in circumstances, safeguarding assets and control well into the future beyond the lifespan of named trustees. [51:00]

Local Context and Client Examples

• In eastern North Carolina, rapid increases in real estate and commercial property values have pushed some estates close to or above the $14 million estate tax threshold, increasing the relevance of gifting and strategic estate planning. [18:40]

• A notable client example involved an elderly woman who built substantial wealth through stock investments (Apple stock) and used gifting effectively to reduce her taxable estate over time. [41:45]

Contact and Further Information

• Listeners are encouraged to contact Harvell & Collins for personalized advice regarding estate planning, gifting, and trusts, by calling 252-726-9050 or visiting their website harvellandcollins.com.