How to Avoid Paying Inheritance Tax in South Carolina
How to Protect Your Family from Estate and Inheritance Taxes
You have worked your entire life to build a legacy for your family. You own homes, investment accounts, and perhaps even property in multiple states. But when the time comes to pass those assets on, Uncle Sam wants his share.
In this video, Charleston estate planning attorney JP Rankin breaks down exactly how to reduce or eliminate inheritance and estate taxes under current federal law, while keeping your wealth in the family.
Watch the full video here:
How To Avoid Paying Inheritance Tax
Understanding the Federal Estate Tax Exemption
Every person in the United States currently has a federal estate tax exemption of $13.99 million.
This means that you can pass up to $13.99 million to your heirs without paying federal estate tax. For married couples, that amount doubles to nearly $28 million.
If your estate exceeds that amount, the excess is taxed at roughly 40 percent. For example, an estate worth $15 million could owe more than $800,000 in federal estate taxes.
But with proper planning, you can protect your family from losing that money unnecessarily.
Using the Unified Credit and Annual Gift Tax Exemption
The unified credit combines three types of taxes into one lifetime limit:
Estate tax
Gift tax
Generation-skipping transfer tax
Each year, you can also give up to $19,000 per person without notifying the IRS or reducing your lifetime exemption. This is known as the annual gift tax exclusion.
For wealthier families, an irrevocable life insurance trust (ILIT) is a popular tool. You can gift money into the trust each year, which then purchases a life insurance policy. Upon your death, the policy pays out to the trust, providing tax-free liquidity to cover estate taxes or other expenses.
Portability: Transferring the Estate Tax Exemption Between Spouses
When one spouse dies, the surviving spouse can take over the deceased spouse’s unused estate tax exemption. This is called portability, and it is filed on IRS Form 706 within nine months of death.
For example, if a husband dies without using his $13.99 million exemption, his wife can “port” it over, allowing her estate to shelter up to $27.98 million from federal estate taxes.
If you fail to file that form within the deadline, however, you lose that benefit permanently. That is why professional guidance is essential.
Bypass Trusts and Marital Trusts: Doubling Your Protection
Some families prefer not to rely solely on portability and instead use a bypass trust and a marital trust to protect both spouses’ exemptions.
Here’s how it works:
When the first spouse dies, their assets are placed into a bypass trust (also called a credit shelter trust).
The surviving spouse can receive income from this trust during their lifetime, but the principal remains outside of their taxable estate.
The remaining assets go into a marital trust, which stays within the surviving spouse’s estate and qualifies for the marital deduction.
When the surviving spouse passes away, the bypass trust assets are not taxed again because they already used the first spouse’s exemption. The marital trust assets receive a step-up in basis, minimizing future capital gains taxes for the children.
Avoiding Capital Gains with the Step-Up in Basis
Avoiding estate taxes is important, but so is managing capital gains.
Assets inside a marital trust remain part of the surviving spouse’s estate. When that spouse dies, those assets receive a step-up in basis to fair market value.
For example:
A home purchased for $500,000 is now worth $1.5 million.
When the surviving spouse dies, the home’s value resets to $1.5 million.
The children can sell it at that price with no capital gains tax.
If that same home were held in the bypass trust, it would not receive the step-up and the children would owe 20 percent in long-term capital gains on the $1 million gain.
Putting It All Together: Unified Credit, Gifting, and Trust Strategy
To summarize:
The unified credit includes your lifetime estate, gift, and generation-skipping exemptions.
You can give $19,000 per person per year without affecting that credit.
Larger lifetime gifts reduce your future exemption but can still reduce estate taxes later.
A well-structured bypass and marital trust plan allows both spouses to use their exemptions efficiently.
These strategies minimize both estate tax and income tax, potentially saving your family hundreds of thousands of dollars.
Work with an Estate Planning Attorney in Charleston
If you live in South Carolina or North Carolina, and your family’s estate is growing, now is the time to plan ahead. JP Rankin and his team can help you design a trust strategy that avoids unnecessary taxes and ensures your wealth stays where it belongs — with your family.
Schedule your free consultation today:
https://www.rankinestatelaw.com/book-a-consultation
Download our free guide:6 Mistakes Families Make With Estate Planning
About JP Rankin
JP Rankin, founder of Rankin Law Firm in Charleston, South Carolina, is licensed in South Carolina, North Carolina, and California. He helps families plan for the unexpected, protect their legacies, and make estate planning understandable — not intimidating.
Disclaimer
This article and video are for informational purposes only and do not constitute legal advice. Viewing or interacting with this content does not create an attorney-client relationship.