Federal Estate Tax Basics

The federal estate tax is a transfer tax imposed on the value of property passing at death above an inflation-indexed exemption amount. The governing statute is the Internal Revenue Code, Subtitle B, Chapter 11 (sections 2001 through 2210).

• 2025 exemption: $13,990,000 per individual under IRC § 2010(c). A married couple can shield up to $27,980,000 with portability.
• Top rate: 40% on amounts above the exemption (IRC § 2001(c)).
• Portability: The surviving spouse may use the deceased spouse’s unused exemption amount (the “DSUE”) under IRC § 2010(c)(5), but only if a timely Form 706 is filed. See Treas. Reg. § 20.2010-2 for the election mechanics.
• Step-up in basis: Assets included in the gross estate generally take a new income-tax basis equal to fair market value at the date of death under IRC § 1014. This is often the most valuable federal tax benefit a typical NC or SC family ever uses — and it has nothing to do with the estate tax.
• Annual gift exclusion: $19,000 per recipient in 2025 under IRC § 2503(b). Gifts within this amount do not consume the lifetime exemption and do not require a Form 709.

Sources: Internal Revenue Code §§ 2001, 2010, 2503; Treas. Reg. § 20.2010-2; IRS Rev. Proc. 2024-40 (2025 inflation adjustments).

The 2026 Sunset — What’s Changing

The Tax Cuts and Jobs Act of 2017 doubled the federal estate and gift tax exemption, but only through December 31, 2025 (Pub. L. 115-97, § 11061). Absent further congressional action, on January 1, 2026 the exemption reverts to its pre-TCJA level of $5,000,000, indexed for inflation from 2010 forward — projected to land at roughly $7,000,000 per person.

What most families should review before year-end 2025:

• Whether existing wills and trusts contain formula clauses (e.g., “the maximum amount that can pass free of federal estate tax”) that may shift dramatically when the exemption drops — this matters even for estates well under $7M, because outdated formulas can leave too much (or too little) to a credit-shelter trust.
• Whether the surviving spouse from a prior death needs to file a late portability election on Form 706 under Rev. Proc. 2022-32 (five-year window) to preserve the DSUE amount.
• Whether beneficiary designations on retirement accounts and life insurance still line up with the estate plan.

NC and SC Have No State Estate Tax

North Carolina and South Carolina residents only have to worry about the federal estate tax.

• North Carolina: The North Carolina estate tax was repealed effective for decedents dying on or after January 1, 2013 (S.L. 2013-10, repealing former N.C.G.S. Chapter 105, Article 1A). NC also has no inheritance tax and no gift tax.
• South Carolina: South Carolina has never imposed a state estate or inheritance tax in the modern era. Title 12 of the S.C. Code contains no estate-tax chapter.

For an NC or SC family with property only in NC and SC, the only relevant estate tax exposure is federal. Families who own real estate or business interests in a state that still imposes an estate tax (e.g., Maryland, Massachusetts, New York, Oregon, Washington, Illinois, Minnesota, Hawaii, Vermont, Maine, Connecticut, Rhode Island, plus D.C.) need to coordinate with counsel licensed in that state.

Who Actually Needs to Worry About Federal Estate Tax?

This page is written for the families on the first two rows — the vast majority of NC and SC households. If you’re on the bottom two rows, the rest of this page will still help you understand the landscape, but you need a tax-focused attorney and a CPA in addition to (or instead of) standard estate planning counsel.

What Ryan Handles for Estates Under $10M

For the families this firm serves — estates under $10M with standard planning needs — the work is the same whether or not estate tax is on the table. The documents are designed to make administration cleaner, protect minor children, give a surviving spouse working authority, and preserve the step-up in basis at death.

Revocable Living Trust

A properly drafted revocable living trust avoids probate in NC and SC, names a successor trustee to manage assets for minor or young-adult children, and gives the surviving spouse continued access without court supervision. For couples with combined estates approaching the exemption, the trust can include a credit-shelter (bypass) sub-trust formula so the first death does not waste the deceased spouse’s exemption. See Trusts and Trust Funding. Statutory authority: N.C.G.S. § 36C-4-401 (creation of a trust); N.C.G.S. § 36C-6-602 (revocability and amendment); S.C. Code § 62-7-401; S.C. Code § 62-7-602.

Will with Portability Guidance

Even when a living trust is the centerpiece, a “pour-over” will captures any assets not retitled into the trust and names a guardian for minor children. For married couples, the will or trust documents the planning around the portability election (Form 706) at the first death, which is often the single most important federal tax step a moderate-wealth family takes. See Wills.

Durable Financial Power of Attorney

Authorizes a named agent to manage finances during incapacity. NC’s Uniform Power of Attorney Act (N.C.G.S. Chapter 32C) and SC’s Uniform Power of Attorney Act (S.C. Code Title 62, Article 8) govern the form and scope.

Healthcare Power of Attorney and Living Will

Names a healthcare decision-maker and documents end-of-life wishes. Governed by N.C.G.S. Chapter 32A, Articles 1A and 3, and S.C. Code §§ 44-66-10 et seq. (Adult Health Care Consent Act) and §§ 44-77-10 et seq. (Death With Dignity Act).

HIPAA Authorization

Allows named individuals to receive protected health information under 45 C.F.R. § 164.508.

Trust Funding

An unfunded trust does nothing. Retitling real estate, accounts, and business interests is a separate workstream from drafting the documents. See Trust Funding for the full process.

Beneficiary Designation Review

Retirement accounts, life insurance, and transfer-on-death accounts pass outside the will or trust by contract. They still count toward the gross estate for federal estate tax purposes under IRC §§ 2039 and 2042, but the recipient is determined by the beneficiary form, not by the estate plan. We review every designation to make sure they line up with the plan and account for the SECURE Act’s 10-year payout rule for most non-spouse retirement beneficiaries (Pub. L. 116-94).

When to Bring in a Tax Specialist

Estate planning has a specialty layer. Ryan does the core drafting for families under $10M with standard needs. When the situation requires advanced transfer-tax engineering, the right answer is a referral, not a stretch. The following situations call for a tax-focused attorney (often working alongside a CPA and a valuation expert):

• Estates over $10M, or expected to grow past that threshold within the client’s lifetime.
• Substantial closely-held business ownership requiring formal valuation work.
• Existing irrevocable trusts — including any life-insurance-funded irrevocable trust, dynasty trust, or qualified personal residence trust — that need ongoing administration or modification.
• Sophisticated lifetime gifting strategies designed to use the $13.99M exemption before the 2026 sunset.
• Charitable planning involving charitable remainder trusts, charitable lead trusts, or private foundations.
• Multi-state real estate or business holdings where discount valuation strategies are on the table.
• Generation-Skipping Transfer (GST) tax planning — clients leaving substantial assets to grandchildren or more remote descendants under IRC §§ 2601–2664.
• Spousal Lifetime Access Trusts (SLATs), Grantor Retained Annuity Trusts (GRATs), Intentionally Defective Grantor Trusts (IDGTs), Family Limited Partnerships, or Crummey trust planning.

For Families with Young Children Seeking Peace of Mind

This is the firm’s bread-and-butter. Most clients are working professionals in their 30s, 40s, and 50s with one or two young or teenage children, a house, retirement accounts, maybe a term life policy, and an estate well under any exemption that has ever existed. They are not worried about estate tax. They are worried about what happens to their kids if both parents die in a car accident next month.

For these families, the revocable living trust does work that has nothing to do with tax planning:

• Avoids probate in NC (N.C.G.S. Chapter 28A) and SC (S.C. Code Title 62, Article 3), keeping the family’s affairs private and reducing administrative cost and delay.
• Names a successor trustee to manage assets for minor or young-adult children without court supervision — usually a relative or trusted friend, sometimes a corporate trustee for larger estates.
• Allows graduated distributions: a common pattern is one-third at age 25, one-third at 30, and the remainder at 35, with the trustee retaining discretion to support health, education, maintenance, and support before those ages.
• Maintains privacy: unlike a probated will, a trust agreement is not filed with the clerk of court.
• Provides immediate authority if a parent becomes incapacitated, without a guardianship or conservatorship proceeding.

Statutory authority for revocable living trusts: N.C.G.S. § 36C-4-401 (methods of creating a trust); N.C.G.S. § 36C-6-602 (presumption of revocability); S.C. Code § 62-7-401; S.C. Code § 62-7-602. Guardianship of minor children is governed by N.C.G.S. Chapter 35A (NC) and S.C. Code Title 62, Article 5 (SC); the will is the document that nominates a guardian.

Realistic Action Items

• Most NC and SC families (under $7M): get a will or revocable living trust, durable financial POA, healthcare POA, living will, and HIPAA authorization. Review every three to five years or after a major life event (marriage, divorce, birth, death, move, large change in assets). Estate tax is not your problem.
• $7M–$13.99M estates: review portability election strategy. If a spouse has already died, confirm whether Form 706 was filed for the DSUE; if not, evaluate the late-election relief under Rev. Proc. 2022-32. Talk to a CPA and either a tax-focused attorney or this firm working in coordination with one.
• Over $10M: schedule with a tax specialist. This firm can draft the core wills, healthcare directives, and trust documents in coordination with that specialist, but the transfer-tax engineering needs to live with someone who does it every day.

See also: Probate Avoidance, Trusts, Wills, Trust Funding, About Attorney Ryan Duffy.

Frequently Asked Questions