Repeal of North Carolina Gift Tax

Repeal of North Carolina Gift Tax
By: Patrick D. Newton
Effective January 1, 2009, North Carolina will no longer have a gift tax, and will leave the ranks of the few states to have such a tax. The North Carolina gift tax is a tax on gifts in excess of $12,000 per donee each year (the "Annual Exclusion"). If a Gift exceeds the Annual Exclusion, it triggers a requirement to file a gift tax return and potentially pay gift tax.

There is currently a limited exception to the payment of gift tax for gifts to parents and descendants. For gifts to these donees, the first $100,000 of taxable gifts is exempt from gift tax. The $100,000 exemption is a lifetime exemption per donor and once it is used up, all gifts in excess of $12,000[1] will generate gift tax. This can be contrasted to the federal gift tax where the lifetime exemption is $1 million, with no special requirement on the relationship between donor and donee.

The repeal of the North Carolina Gift Tax will allow taxpayers to make gifts up to their full $1 million lifetime federal exemption without incurring any gift tax and therefore enhances the value of a number of estate tax planning techniques.

One such technique is simply making gifts. Giving away an asset that is likely to grow in value is an excellent way to help control future estate taxes; any and all future growth of the asset will no longer be part of your potential taxable estate. Straight gifts of cash, however do not leverage your available gifting to maximize the transfer of wealth at your death.

Estate tax techniques are available to "leverage" your exemptions to move additional value to your children or others while minimizing the tax effect of doing so. Planning techniques that will be enhanced by the repeal of the North Carolina gift tax include the Qualified Personal Residence Trust (QPRT); the Grantor Retained Annuity Trust (GRAT); the installment note sale to an Intentionally Defective Irrevocable Trust (IDIT), the Charitable Remainder Trust (CRT, but only if the payment stream does not go to the Grantor), Spousal Lifetime Access Trusts (SLAT) and straight gifting. If you are interested in learning more about how these techniques can enhance your estate plan, please call me at 828-696-1811 to arrange an appointment.

[1] Annual exclusion is set to increase to $13,000 in 2009