If you are a North Carolina resident fortunate enough to leave a very large estate, worth millions, it may owe both federal estate tax and a separate North Carolina estate tax. The state exemption amount is tied to the federal one, which means that for deaths in 2013, estates with a total value of up to $5.25 million are exempt from both state and federal estate taxes. For 2012 deaths, the exempt amount was $5.12 million. The exempt amount will be indexed for inflation each year.
Nonresidents may also owe North Carolina estate tax, if you own more than $5.25 million of North Carolina property—that is, real estate other tangible assets located in the state.
Property You Leave to Your Spouse
Property you leave to your spouse is exempt from both state and federal estate tax, no matter what the amount. This is called the marital deduction. (There’s one exception to the rule, for federal estate tax; noncitizen spouses cannot take advantage of the unlimited marital deduction.)
Your Gross Estate
Your executor will need to add up the date-of-death value of your assets to determine whether or not federal and state estate tax returns are required. Pretty much everything you own—real estate, cars, bank accounts, securities, retirement plan funds, and so on—is counted, whether or not it goes through probate or was held in a living trust. If you make large taxable gifts (more than the annual federal gift tax exclusion amount, which is currently $14,000 per year per recipient), the taxable amount of those gifts will also be counted as part of your estate.
If you own assets with someone else, only the value of your interest is included in your gross estate. For example, if you and your spouse own your home together, half of its value will be included in your estate.
Estate Tax Returns and Rates
If your estate is large enough, your executor must file a North Carolina estate tax return and pay any tax due nine months after your death. That’s the same time that the federal estate tax return is due. It’s common, though to ask the IRS for an extension to file the federal return, and if your executor does so, it automatically extends the deadline for the state return as well.
The top North Carolina estate tax rate is 16%, far below the current federal rate. Any tax due can be paid in installments.
You can download North Carolina estate tax return and instructions from the North Carolina Department of Revenue website.
Federal and state estate tax returns are quite complicate—and if your executor has to file them, it means your estate is very large. Your executor will need to hire a lawyer or CPA who has lots of experience with these matters, and pay the fee from the assets of the estate.