South Carolina Estate Tax Guide

Have you thought about what will happen to your assets after you’re gone? Or how taxes might impact what you leave behind for your loved ones? These are questions many South Carolinians wrestle with, but understanding estate tax in South Carolina can help you make informed decisions about your future. 

Whether you’re just beginning to map out your estate plan or you’ve already started, this guide will walk you through what you need to know about estate tax in South Carolina. 

Does South Carolina Have a State Estate Tax? 

Good news for South Carolina residents! There’s no state-imposed estate tax in South Carolina. This means the state doesn’t take a portion of your estate’s value when it’s passed down to your heirs. Many states impose state-level estate taxes, which can cut into the inheritance you leave behind, but South Carolina keeps this process simpler by not adding an additional tax. 

That said, South Carolinians still need to account for federal estate taxes, as well as other financial considerations like inheritance taxes in other states where assets may be located. 

What is the Federal Estate Tax?

Even though South Carolina doesn’t have an estate tax, the federal government does. The federal estate tax applies to estates that exceed a certain exemption threshold. The exemption amount is $12.92 million per individual or $25.84 million for a married couple. Estates valued below these amounts are not subject to federal estate taxes. 

How does the Federal Estate Tax Exemption Work?

Let’s say your estate is valued at $13 million and you’re a single individual, the federal government will tax the portion exceeding $12.92 million—that’s just $80,000 of your total estate. Importantly, anything under $12.92 million is exempt from federal estate tax. 

Why Estate Tax Planning Matters for High-Value Estates

Considering the high exemption threshold, federal estate taxes affect a relatively small percentage of estates in South Carolina. However, if you own significant property, investments, or a business, it’s crucial to plan accordingly. 

How Does Gifting Work to Reduce Taxable Estates? 

Did you know that gifting assets during your lifetime can reduce the taxable value of your estate? The federal Gift Tax Exclusion allows you to give up to $17,000 per recipient per year (as of 2023) without it impacting your estate’s exemption amount. 

Maximize Gifting Limits as a Couple

Strategic gifting is a simple yet effective tool to ensure your wealth goes directly to your loved ones instead of being taxed later.  Let’s consider the following scenario:

A married couple could gift $34,000 per recipient annually without triggering gift taxes. Over time, gifting assets this way can effectively lower the total value of your estate, potentially avoiding federal taxation in the future. 

What About Portability for Married Couples? 

If you’re married, the estate tax rules are even more favorable. Portability allows the surviving spouse to claim any unused portion of their deceased spouse’s federal estate tax exemption. This means that if your spouse doesn’t use their full $12.92 million exemption, it can be transferred to you, effectively doubling the exemption for your estate. 

How Portability Can Double Your Estate Tax Exemption

If your spouse passed away and used only $2 million of their exemption, you can claim the remaining $10.92 million, giving your combined estate a $23.84 million exemption. This helps ensure that more of your assets are protected and passed down to your beneficiaries. 

Do You Need to Worry About Out-of-State Estate Taxes? 

If you own property or assets in another state, you should consider whether they may be subject to that state’s estate taxes. States like New York and Massachusetts impose their own estate taxes, which could impact how much your beneficiaries inherit from out-of-state properties or businesses. 

Consulting with an estate planning attorney familiar with multi-state estate planning ensures your plan considers every potential tax liability, protecting your heirs from unexpected financial burdens. 

How Can Charitable Giving Help Reduce Estate Taxes? 

If philanthropy is close to your heart, charitable giving can be a win-win solution. Donations made to qualified charities are tax-deductible and can significantly lower the taxable value of your estate. 

For example, if your estate is valued at $15 million and you leave $3 million to a charity, your taxable estate is reduced to $12 million—below the federal exemption threshold. This ensures that more of your legacy goes toward causes you care about instead of being taxed by the federal government. 

How Does Life Insurance Factor Into Estate Taxes? 

Life insurance policies are another critical tool for estate planning. Proceeds from life insurance are typically not subject to income tax, providing your heirs with immediate liquidity. However, depending on how the policy is structured, its payout may be included in your taxable estate. 

Using Trusts to Exclude Life Insurance from Your Taxable Estate

Transferring ownership of the policy to a trust can exclude its value from your taxable estate. This allows you to provide for your loved ones without inflating your estate’s taxable value.  Life insurance policies can also cover potential estate tax liabilities, ensuring your heirs won’t need to sell off assets to pay taxes. 

Can a Trust Help You Avoid Federal Estate Taxes? 

Trusts are a popular and effective tool for reducing federal estate tax exposure. Revocable living trusts, irrevocable life insurance trusts, and grantor-retained annuity trusts (GRATs) can all help manage the value of your estate while ensuring it’s distributed according to your wishes.  Trusts also provide additional benefits like privacy, creditor protection, and control over how and when your assets are distributed. 

Estate Planning Tips for South Carolinians 

Here are a few actionable tips to help you get started with estate planning in South Carolina:

• Start Early: The sooner you establish your estate plan, the more flexibility you’ll have to implement strategies like gifting or setting up trusts. 
• Review Regularly: Life changes like marriage, divorce, or the birth of children can impact your estate plan. Make sure to review it periodically. 
• Seek Professional Advice: Tax laws can change, and having the right plan ensures your assets stay protected regardless. 
• Communicate with Beneficiaries: Be transparent with your loved ones about your estate plan to avoid confusion later. 

Planning Your Estate? We’re Here to Help 

Understanding estate tax laws is essential to secure your legacy and protect your loved ones. South Carolina’s lack of state estate tax offers financial advantages, but federal taxes and other considerations can still play a significant role in your planning. 

At Forever Estate Plan, we’re here to help you make informed decisions about your estate. Whether you need help drafting a will, establishing a trust, or understanding how tax laws impact your assets, we’re here to provide the guidance and reassurance you deserve. 

Contact our team today! Secure your legacy, protect your future, and ensure your loved ones are taken care of.