Stepped-Up Basis: What North Carolina High Earners Should Plan For Now
If you are a high earner in North Carolina, here is the honest answer most people are not hearing: you almost certainly will not owe federal estate tax, and North Carolina stopped collecting its own estate tax years ago. In 2026 the federal exemption sits at $15 million per person, or $30 million for a married couple, and our state repealed its estate tax effective January 1, 2013. So for most high earners, the tax to plan around is no longer the estate tax. It is the income tax your family pays on what they inherit, and that turns on something called stepped-up basis. This piece is part of our guide to estate planning for high income earners in Raleigh.
The short version:
• In 2026, the federal estate tax exemption is $15 million per person and $30 million per married couple, so most high earners owe no federal estate tax.
• North Carolina has no estate tax, no inheritance tax, and no gift tax, and has not had a state estate tax since 2013.
• When you die, most non-retirement assets get a stepped-up basis, meaning their cost basis resets to fair market value at your death, which can erase built-in capital gains for your heirs.
• Gifting an appreciated asset during life usually does not get that step-up, so your heir keeps your old, low basis and the gain that comes with it.
• The real planning question for high earners now is income tax, not estate tax, so a plan built for the old rules may be aimed at the wrong target.
Do high earners in North Carolina owe estate tax in 2026?
For almost all of them, no. Under current federal law, the federal estate tax only applies to the amount of an estate above the exemption, and in 2026 that exemption is $15 million per person, or $30 million for a married couple using portability. Anything above it is taxed at 40 percent, but only the excess. North Carolina adds nothing on top, because the state repealed its own estate tax effective January 1, 2013, and it has no inheritance tax and no gift tax either.
So unless your estate is north of $15 million, single, or $30 million, married, the estate tax is not your problem. And quite candidly, that describes most high earners I sit down with in Raleigh. A successful physician, a two-income household of tech executives, a business owner with a few million in assets, none of them are anywhere near the federal line. There are real exceptions, since a business sale, a stock windfall, or a concentrated real estate position can push an estate into eight figures in a hurry, and if that is you, estate tax planning still belongs on the table. For everyone else, I am not going to spend your time planning around a tax you will almost certainly never pay. If you want the full breakdown of the federal exemption and how it got here, we cover that in our companion piece on the federal estate tax.
What is stepped-up basis, and why does it matter?
Stepped-up basis is the rule that resets the cost basis of most inherited assets to their fair market value on the date the owner dies. Cost basis is just what an asset is treated as having cost for tax purposes, and capital gains tax is charged on the growth above that basis when the asset is sold. Under federal law (Internal Revenue Code Section 1014), your heirs do not inherit your original basis. They inherit a fresh one, set at your date of death.
Here is what that means in plain dollars. Say you bought stock decades ago for $50,000 and it is worth $400,000 when you die. If you had sold it the day before you died, you would owe capital gains tax on $350,000 of growth. But when your heir inherits it, their basis steps up to $400,000. If they sell it the next week, the taxable gain is close to zero. That is not a loophole. It is how the code works, and for a high earner with decades of appreciation in a portfolio, a home, or a rental property, it is often worth far more than any estate tax strategy. Let me be very clear with you: protecting that step-up is the planning that actually moves money for most North Carolina families now.
One important exception trips families up. Traditional retirement accounts, your IRA and your 401(k), do not get this step-up. The same section of the code treats them as income in respect of a decedent, so your heirs pay ordinary income tax as they pull the money out, just as you would have. We dig into that in our piece on retirement accounts and the SECURE Act.
Should you gift appreciated assets now, or let your heirs inherit them?
This is where good intentions cost families money. Gifting feels generous and proactive, and sometimes it is exactly right. But when you give away an appreciated asset during your life, your heir generally takes your basis, not a stepped-up one. The tax code calls this carryover basis (Internal Revenue Code Section 1015). So if you gift that same $50,000 stock now, your child keeps the $50,000 basis, and the built-in gain comes right along with it. If instead they inherit it, that gain can disappear.
With the exemption at $15 million, the old reason to gift early, using up your exemption before it shrank, mostly went away. So for a family under the exemption, holding low-basis assets to let them pass at death is usually the better move. Gifting still makes sense in plenty of cases: cash, high-basis assets, things likely to keep climbing fast, or simply helping family now when they need it. And honestly, the $19,000 you can give each person every year, without touching your lifetime exemption or filing a gift tax return, covers a lot of ordinary generosity. The point is to gift on purpose, not on autopilot.
How do trusts affect the basis step-up?
Trusts are where this gets technical fast, so here is the high-level version. Whether an asset gets the step-up depends on whether it counts as part of your taxable estate when you die. Assets in a revocable living trust, the most common kind, are still treated as yours, so they generally do get the step-up. That is one reason a revocable trust remains a workhorse for ordinary planning.
Some irrevocable trusts are different. When you move an asset into an irrevocable trust that keeps it outside your taxable estate, you can lose the step-up, because the asset is no longer yours at death. That tradeoff used to be worth it when the goal was shrinking a taxable estate. Now, with most high earners under the exemption, locking a low carryover basis inside an irrevocable trust can quietly hand your family a capital gains bill they did not need. Here is what high earners do not always understand: the right trust for an estate tax problem can be the wrong trust for an income tax one. This is very fact-specific, so it is worth reviewing with an attorney rather than guessing. We walk through trust choices in more depth on our trusts page for high income earners.
Your plan may be aimed at the wrong tax
None of this means planning matters less. It means the target moved. If your documents were drawn up years ago, when the exemption was lower and a sunset was looming, they may still be built to dodge a tax you are no longer going to owe, while doing nothing about the income tax your family actually will face. This bites hardest when older documents lean on bypass-trust or AB-trust formulas written for a much smaller exemption, which can now route assets into a structure that forfeits the step-up. That is the expensive mistake now, and it is a quiet one, because nothing looks wrong until your heirs sell an asset and meet a capital gains bill that good planning could have erased.
I want to strongly encourage you to have your plan reviewed with fresh eyes, specifically for how it handles basis. If we can be of assistance to you, please reach out at 919-647-9599, schedule a discovery call, or start with our Raleigh estate planning team. A short conversation now can save your family a great deal later.
About the Author
Jason Walls, J.D., is the Founder and Chief Legal Officer of The Walls Law Group, a North Carolina law firm focused on helping business owners and families protect, preserve, and transfer wealth through estate, business, and asset protection planning.
Disclaimer: The materials contained on The Walls Law Group website are meant as general information only and do not constitute legal advice. The hiring of an attorney is an important decision that should not be based solely on advertisements. This blog post is not intended to be interpreted as an advertisement or as the solicitation of legal services. Always seek counsel from competent and qualified professionals for your unique situation and circumstances. Reading this blog post does not form an attorney-client relationship between the reader and the firm or its attorneys.
