Taxes can play a bigger role than many realize when it comes to passing on your wealth. Even in a tax-friendly state like South Carolina, federal tax laws can dramatically reduce the amount of assets your heirs receive if you’re not prepared.
This makes planning ahead crucial for preserving as much of your estate as possible. Through strategic tax planning, you can provide a layer of protection for your hard-earned assets and help ensure they reach the next generation with minimal tax burden.
Let’s start by exploring the primary taxes that can impact the wealth you pass on.
Taxes That Can Affect Your Estate
- Estate Taxes
Estate taxes are levied on the value of a person’s estate after they pass but before it is distributed to heirs. South Carolina doesn’t impose a state-level estate tax, making it an attractive state for those with large estates.
- Gift Taxes
A gift tax is imposed on transfers of assets from one person to another during their lifetime while receiving nothing or less than their full value in return. In South Carolina, there is also no state-level gift tax, but there is still a federal gift tax threshold.
- Inheritance Taxes
Inheritance taxes are paid by the person who inherits assets after someone passes on. They are typically based on the value of the assets and the beneficiary’s relationship to the deceased.
Since South Carolina does not impose an inheritance tax, you won’t owe state taxes if you inherit assets from someone in the state. However, you may still be liable for federal taxes under that state’s laws.
Federal and State Implications for South Carolina Residents
While South Carolina doesn’t impose estate or inheritance taxes, federal estate taxes still apply to larger estates. In 2024, estates valued over $13.61 million ($27.22 million for couples) are subject to federal estate tax.
It is also worth noting that the federal estate tax exemption is set to drop by half to about $7.2 million in 2026 when current tax laws expire. This means fewer assets will be exempt from federal estate taxes, making it essential to get started with estate planning sooner rather than later.
Additionally, while South Carolina doesn’t have gift taxes, federal rules apply. In 2024, individuals can gift up to $18,000 per person annually without affecting their lifetime exemption. However, any amount beyond this counts toward the $13.61 million lifetime exemption, potentially affecting future estate taxes.
Those inheriting from residents of other states with inheritance taxes must also consider potential tax liabilities from those states.
South Carolina is generally tax-friendly for passing on wealth, but federal taxes can significantly impact larger estates. This highlights the importance of timely and strategic tax planning.
What Is Tax Planning?
Tax planning is the process of organizing your finances to minimize tax liabilities while complying with legal obligations. In estate planning, it means making strategic decisions about how to transfer assets using tools like trusts, gifting, and deductions to minimize federal estate and gift taxes.
Effective tax planning helps protect your wealth and ensure more money reaches your heirs. Understanding and addressing how taxes impact your estate and gifts helps you to maximize the value you pass on to the next generation while fulfilling your tax obligations efficiently.
4 Strategies for Minimizing Estate Taxes
Here are some available strategies you can use to minimize the tax burden on your estate:
1. Explore Gifting Strategies
Gifting is an effective strategy for reducing estate taxes while passing your assets to your chosen beneficiaries.
In South Carolina, you can take advantage of the federal gift tax exclusion, which allows you to gift up to $18,000 per person annually in 2024 without triggering federal gift taxes. This amount doubles for married couples, letting them gift $36,000 per recipient each year.
2. Set Up Trusts
Setting up a trust is another way to minimize estate taxes legally.
An Irrevocable Life Insurance Trust (ILIT) removes life insurance proceeds from your taxable estate. It transfers the ownership of your life insurance policy into the trust, removing its value from your taxable estate and providing your beneficiaries with tax-free benefits.
A tax planning attorney can walk you through your options and help you maximize these tools to safeguard your wealth and those to whom you’ll pass it on.
3. Marital Transfers
If your spouse is a U.S. citizen, you can leverage the unlimited marital deduction to transfer an unlimited amount of assets to your spouse without incurring federal estate taxes. This transfer can happen during your lifetime or after you pass away.
However, while this strategy defers estate taxes, it does not eliminate them. When the surviving spouse dies, the estate may still face taxes if the combined estate exceeds the exemption amount.
4. Charitable Giving
When you want to reduce estate taxes while supporting causes you care about, charitable gifting strategies are worth considering.
For example, with a Charitable Lead Trust (CLT), you can donate income to a charity for a set period. Once that time ends, the remaining assets transfer to your heirs, effectively lowering the taxable value of your estate.
A Charitable Remainder Trust (CRT) works in reverse. It lets you provide income to non-charitable beneficiaries (like family members) first, with the remainder going to a charity. Both types offer immediate tax deductions and help reduce estate taxes while fulfilling your philanthropic goals.
Preserve Assets, Minimize Taxes, and Ensure a Smooth Transfer to Your Heirs With Wiles Law
Even with South Carolina’s tax benefits, federal taxes can significantly impact larger estates. Timely tax planning is essential for helping to safeguard your hard-earned wealth and minimizing tax burdens. By implementing the right strategies, you can help protect your assets from unnecessary taxation and ensure your heirs receive the full benefit of your estate.
If you need expert guidance on the tax-efficient transfer of your wealth, we’ll be happy to assist. At Wiles Law, we offer personalized, comprehensive solutions that allow you to protect your legacy for future generations.
Let us help you plan wisely today. Schedule a consultation to get started.