Estate Tax Update
On July 4, 2025, the One Big Beautiful Bill Act became law, and one of its key changes affects federal estate and gift taxes. For 2025, the exemption sits at approximately $13.99 million per individual. Without congressional action, it was scheduled to drop to around $7 million in 2026. Instead, beginning January 1, 2026, the exemption will be raised to $15 million per person — or $30 million for married couples — and indexed for inflation going forward, with the 40% top tax rate remaining unchanged.
Moreover, the new exemption is now permanent, meaning that it won’t automatically expire in the future and revert back to a lower threshold.
In plain terms, estates under those thresholds will remain exempt from federal estate tax. This permanence offers clarity for attorneys and clients—no more guesswork about timed sunsets or surprise deadlines.
As a reminder, this development applies only to the estate tax at the federal level. North Carolina abolished its own estate tax entirely in 2013.
How Estate Taxes Work
When someone dies, the IRS adds up everything they owned—homes, bank accounts, retirement savings, life insurance, even investments—and treats that total as their estate. If the estate exceeds a certain threshold ($15 million starting in 2026), then a tax—ranging from 18% to 40%—is applied only to the amount above that threshold. This tax is based on fair market value at death, not what was originally paid for the assets.
Estate Planning Isn’t Just About Big Bucks
Sure, the influx of exemptions is good news for the few who are affected—but not everyone needs $15 million to make estate planning essential. Whether your net worth is $15 million or $500,000, estate planning addresses critical concerns that inheritance thresholds alone can’t solve. Here are a few:
Healthcare directives and powers of attorney. Life happens—hospitalizations or accidents don’t wait for wealth. These documents name who makes medical and financial decisions if you can’t.
Guardianship arrangements. Parents of minor kids: if something happens to you, who steps in? Courts can appoint someone unexpected without your input.
Avoiding probate. Probate is public, slow, and costly. Even moderate estates can be tied up for months, with legal fees eating into what heirs receive.
Business succession. Whether it’s a small retail outlet or a side hustle, a succession plan ensures your enterprise continues smoothly after you’re gone.
Asset protection and family dynamics. Blended families, second marriages, or special-needs dependents all benefit from trusts or provisions designed to preserve fairness and avoid conflict.
Final Thought
Yes, the recent legislation ensures the federal estate tax exemption is generous and long-term. But for most folks, planning remains invaluable. It’s not about saving taxes. It’s about clarity and protection. And while probate in North Carolina is more straightforward than many states, it can still be time-consuming and expensive. A modest estate plan with essentials—say, a revocable living trust, will, powers of attorney, and beneficiary designations—can make a big difference.
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