Tax season reminder: your estate plan and your taxes are connected

You just spent the last several weeks pulling together income statements, tracking down 1099s, reviewing what you gave to charity, and figuring out what you owe or what you are getting back. Tax season has a way of making you pay attention to your finances in a way that the other eleven months of the year do not.

And quite candidly, that attention is worth something beyond April 15. Because if you have a family and assets, a lot of what you just dealt with on your tax return connects directly to your estate plan. The two are not separate systems. They are different parts of the same picture.

Here's what most people don't understand: estate planning is not just about who gets your assets when you die. Done well, it is also about how much of those assets gets lost to taxes along the way, and what you can do about it right now, while you are still here.

Let me walk you through the tax dimensions of estate planning that come up most often in our work with North Carolina families.

Start with what North Carolina does not tax

Before anything else, here is the good news for North Carolina residents: North Carolina has no state estate tax and no state inheritance tax. That has been true since the state repealed its estate tax effective January 1, 2013. Whatever your estate is worth when you die, the state of North Carolina will not take a cut of it.

That does not mean taxes are irrelevant. Federal rules still apply. And if you own property in other states, those states' rules apply to that property. But for most North Carolina families, the only death-related taxes you are working around are federal ones.

The federal estate tax: who it actually affects

The federal estate tax applies to estates above a certain threshold. For 2026, that threshold is $15 million per individual, a figure set by the One Big Beautiful Bill Act signed into law on July 4, 2025. For married couples who do proper planning, that threshold effectively doubles to $30 million.

The math is pretty simple: if your estate is below $15 million, you will owe no federal estate tax. The vast majority of North Carolina families fall into that category. But here is where people make a mistake: they assume that because they are not in estate tax territory today, they never will be. For business owners, real estate investors, and families with significant retirement accounts, the numbers can grow faster than people expect.

And quite candidly, even if your estate is well below the threshold today, the planning tools that minimize estate tax exposure also serve other purposes: protecting assets from creditors, providing for a spouse, ensuring a smooth transfer to children. The tax benefit is one reason to plan, not the only one.

For the relatively small number of estates that do exceed the $15 million threshold, the federal estate tax rate on the excess is 40 percent. On a $20 million estate, that is $2 million in federal tax on the amount above the exemption. Having an estate plan that accounts for this is not optional at that level.

The gift tax and the annual exclusion

Here's what most people don't understand about the federal gift tax: it is unified with the estate tax. Every dollar you give away above the annual exclusion during your lifetime counts against the same $15 million lifetime exemption that applies to your estate at death.

The annual gift tax exclusion for 2026 is $19,000 per recipient. This means you can give up to $19,000 to any individual, to as many individuals as you want, in a single year, without any gift tax consequence and without touching your lifetime exemption. For married couples who elect gift-splitting, that figure doubles to $38,000 per recipient per year.

This is one of the most commonly missed planning opportunities I see. A parent with three children and six grandchildren could give $19,000 to each of nine people annually, moving $171,000 out of their taxable estate every year, completely tax-free. Over ten years, that is $1.71 million transferred with zero gift tax and zero reduction in the $15 million lifetime exemption.

I want to strongly encourage you to talk to your estate attorney and your CPA together about whether annual gifting makes sense in your situation. It is a simple strategy, but it works, and most families with meaningful assets are not using it as deliberately as they could be.

Step-up in basis: the tax benefit most people miss

This is the provision that gets the least attention and may produce the most value for families with appreciated assets.

When you buy stock, real estate, or another asset and hold it for years, it increases in value. If you sell it while you are alive, you owe capital gains tax on the difference between what you paid and what you sell it for. If you have held an asset for decades, that gain can be very large.

Here's what changes when you die. Assets that pass through your estate receive a step-up in basis to their fair market value on the date of your death. Your heirs inherit the asset at its current value, not your original purchase price. If they sell it immediately, there is no capital gains tax owed. None.

The math is pretty simple on what this means in practice. Suppose you bought stock for $50,000 thirty years ago and it is now worth $500,000. If you sell it, you owe capital gains tax on $450,000 of gain. If you hold it until death and your children inherit it at $500,000, they can sell it the next day and owe nothing.

This has real planning implications. Assets with large built-in gains are often better held until death rather than sold or gifted during life, because a gift does not trigger a step-up. Your recipient inherits your original cost basis along with the asset. Deciding which assets to gift, which to hold, and which to sell is a tax planning question that your CPA and estate attorney should be working through together.

Generation-skipping transfer tax

If you are planning to leave assets to grandchildren or to a trust that will benefit multiple generations, there is a third federal tax to understand: the generation-skipping transfer tax, commonly called the GST tax.

The GST tax applies when assets pass to someone two or more generations below you, typically grandchildren or great-grandchildren. Congress created it specifically to prevent families from avoiding one generation of estate tax by passing assets directly to grandchildren in trust. The GST tax rate is also 40 percent, and it applies on top of any estate tax.

The good news is that the GST tax shares the same $15 million exemption as the estate tax. With proper planning, you can allocate your GST exemption to transfers intended to benefit grandchildren, sheltering those assets from the GST tax for multiple generations.

This gets complicated quickly, and it is an area where working with both an estate planning attorney and a CPA who understands transfer tax is not optional. Getting the GST exemption allocation wrong on a trust document is the kind of mistake that costs families millions.

Charitable giving and tax efficiency

If you itemize deductions on your federal tax return, you are already thinking about charitable giving in a tax context. But the charitable giving strategies available through estate planning go well beyond what most people consider at tax time.

A charitable remainder trust, for example, allows you to transfer appreciated assets to a trust, receive an income stream during your lifetime, take a partial charitable deduction at the time of transfer, and avoid immediate capital gains tax on the appreciation. The charity receives what remains in the trust after your death. Done correctly, it is a structure that benefits you, your family, and the cause you care about.

A donor-advised fund lets you make a large charitable contribution in a year when your income is high, take the full deduction that year, and then direct the actual grants to your chosen charities over time. If you had a significant income event in 2025, such as a business sale, a large bonus, or a property sale, your CPA may have already mentioned this. If they did not, it is worth asking about.

Charitable bequests in your will or trust are also worth reviewing during tax season. Assets left to charity at death pass outside the taxable estate entirely. For families at or near the federal exemption threshold, a well-placed charitable bequest can eliminate estate tax exposure while also honoring causes that matter to you.

The coordination problem most families have

Here is what I see consistently in my practice: people have a CPA who does their taxes, and they have an estate plan, but the two sides have never talked to each other. The CPA does not know what is in the trust. The estate attorney does not know the cost basis on the real estate portfolio. Decisions get made in isolation that would look different if both professionals were working from the same picture.

Tax season is the right time to fix that. You have just produced a comprehensive summary of your financial life in the form of a tax return. That document tells your estate attorney things about your asset mix, your income sources, your charitable giving patterns, and your business interests that are directly relevant to whether your estate plan is still doing what you intended.

I want to strongly encourage you to share your tax return with your estate attorney, or at least schedule a conversation where you walk through what changed financially in the past year. A business that grew substantially, a retirement account that crossed a new threshold, real estate that appreciated, a new grandchild who should be in the plan. Tax season surfaces all of it.

What to do with this information

If you do not yet have an estate plan, the tax implications we just covered are one more reason to get one in place. The planning tools that reduce tax exposure, annual gifting, trust structures, charitable vehicles, step-up in basis planning, all require proper legal documents to work correctly.

If you have an estate plan that has not been reviewed in the last few years, this is a good time to ask whether the plan still reflects your assets, your family, and the current tax law. The rules around gift tax exclusions, estate tax exemptions, and the GST tax all changed meaningfully with the One Big Beautiful Bill Act in 2025. A plan drafted around the old numbers may not be working the way you think it is.

We work with families throughout Wake County and across North Carolina on estate planning that accounts for both the legal and the financial dimensions of what you are building. If we can be of assistance to you, please schedule a discovery call or reach out directly at 919-647-9599.

Disclaimer

This article is for educational purposes only and does not constitute legal or tax advice. The information provided is general in nature and may not apply to your specific situation. Estate planning and tax planning involve complex considerations that vary based on individual circumstances. For legal advice tailored to your circumstances, please schedule a consultation with The Walls Law Group. For tax advice, consult a qualified CPA or tax professional.