North Carolina Estate Tax After a Death

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As of October 2019, North Carolina does not collect an estate tax at the state level after the death of a resident. These taxes were repealed in 2013 with major changes that took effect with regard to federal estate tax laws. Before the change, the state did collect estate taxes called a "pick-up tax," that was equal to a portion of the overall federal estate tax bill.

An estate tax is assessed on the federal level for estates valued at over $11.4 million, as of 2019. The fair market value of the property of a deceased person less any outstanding liabilities will create the total estate value.

Also, estate taxes are different from inheritance taxes that are paid by the beneficiaries for the money they receive in some states. The federal government does not issue an inheritance tax and, in North Carolina, no inheritance tax is assessed on the state level.

North Carolina's Pick-Up Tax

Before 2013, the "pick-up tax" was a North Carolina state estate tax that is collected based on the state estate tax exemption that the Internal Revenue Service (IRS) allowed on the federal estate tax return, IRS Form 706. Each state has different tax laws concerning the pick-up tax. So the amount that a state would collect varied based on that state's estate tax laws.

In essence, however, the overall estate tax bill was not increased or decreased due to the pick-up tax. Instead, the total tax bill was apportioned between the IRS and state taxing authority.

The apportion of the state tax means that a portion of the federal estate tax was taken away from the IRS and instead paid to the decedent's state taxing authority. For example, back in 2000, if a deceased North Carolina resident owed federal estate taxes, then the North Carolina Department of Revenue collected the pick-up tax from the deceased North Carolina resident's estate and the balance went to the IRS.

The Future of the NC Estate Tax

Effective in 2013, the pick-up tax was officially phased out under the provisions of the Economic Growth and Tax Relief Reconciliation Act (EGTRRA).

In response to these changes in federal law, some states chose to enact laws that allow the state to collect a state estate tax still. This method is referred to as "decoupling" since the states that enacted a state estate tax no longer based their state estate tax laws on current federal estate tax laws.

The majority of states did absolutely nothing and therefore no longer collect a state estate tax. For a time, North Carolina was among the minority of states that did enact a separate state estate tax which disappeared for one year in 2010 due to the repeal of the federal estate tax. Then the tax reappeared in 2011 with a $5 million exemption which changed to a $5.12 million exemption in 2012. In the end, the North Carolina estate tax was repealed for good effective January 1, 2013. 

In addition, while under the provisions of EGTRRA the pick-up tax was supposed to return in 2011, it didn't return due to the enactment of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (TRUIRJCA). The TRUIRJCA reinstated federal estate taxes but did not bring back the pick-up tax.

Nonetheless, the provisions of TRUIRJCA were set to expire December 31, 2012. This sunsetting of the Act would have brought the pick-up tax back in 2013, but Congress and President Obama acted in early 2013 to pass the American Taxpayer Relief Act (ATRA).

Under the provisions of ATRA, the rules governing federal estate taxes as set forth under TRUIRJCA were made permanent. The permanent status meant that the pick-up tax was not resurrected in 2013 and will not come back in future years without further action by Congress. Thus, don't expect North Carolina to begin collecting a state estate tax again anytime soon.

For more information about the North Carolina estate tax, refer to the North Carolina Department of Revenue website.

The information contained in this article is not tax or legal advice and is not a substitute for such advice. State and federal laws change frequently, and the information in this article may not reflect your own state’s laws or the most recent changes to the law. For current tax or legal advice, please consult with an accountant or an attorney.