South Carolina does not have inheritance and estate taxes. On the one hand, it makes the state’s estate planning and inheritance procedure easier. However, there are certain cases when a South Carolina resident may have to deal with a specific fiscal burden of the inherited property.
This article shall talk about the peculiarities of estate planning and inheritance procedures in South Carolina.
The inheritance laws in South Carolina
While South Carolina itself does not levy inheritance laws, there may be cases when the state’s resident would still owe a related tax due:
- In case you inherit a property from a resident of another state, you will have to pay that state’s local inheritance tax;
- Large estates that exceed a lifetime exemption of $12,06 million are subject to the federal estate tax.
The federal estate tax is levied on a property’s taxable part before the heir transfers the assets. It has a progressive scale of up to 40%.
However, according to some inheritance laws of South Carolina, not all the deceased person’s property may be considered as a part of the estate. That way, a joint bank account will automatically pass to the surviving joint owner.
It is also pretty hard to disinherit a spouse in South Carolina even if the deceased has made a corresponding will testament. South Carolina laws preserve the inheritance rights to at least a part of an estate for a surviving spouse, even in such cases.
Estate planning in South Carolina
Once you own a sufficient property that exceeds the $12,06 million federal estate tax exemption bar, you may want to reduce the taxable part of your estate to preserve your heirs’ welfare.
South Carolina is one of the states that don’t levy a gift tax. It means that you may start gifting away a share of your estate to your heir presumptive, reducing the estate’s taxable part gradually.
It is essential to remember about the federal gift tax, however. It means that a South Carolina resident cannot simply gift away the entire taxable part of their estate in one transfer without reporting it to IRS or affecting the lifetime exemption.
The federal Gift tax has an exclusion bar of $16,000 per recipient per year. It means that you can make $16,000 gifts to as many people as you wish every year.
The federal gift tax also does not levy on:
- Gifts made specifically between two spouses who are both American citizens;
- Payments made to cover study or medical expenses or another person as long as the money is transferred directly to the institution or service provider;
- Donation to IRS-approved funds.
With a proper maneuvering and thoughtful approach to estate planning, the local South Carolina tax laws and exclusions from the federal tax rates allow a South Carolina resident to protect up to $12 million worth of estate from the federal fiscal burden. Since the lifetime exemption is portable, a married couple can legally preserve up to $24 million-worth inheritance.