North Carolina Estate Taxes

North Carolina's estate tax was designed as a "pick-up" tax equal to the state death tax credit under federal estate tax law. However, North Carolina "decoupled" from the federal law when the state death tax credit was phased out in 2002 through 2004 under federal law. Instead, the North Carolina estate tax is equal to the state death tax credit in the federal estate tax law as it was prior to 2002. North Carolina continues to exempt the same amount of the estate from taxation as the federal law allows ($2 million in 2008; $3.5 million in 2009).

Deductions. The following items can be deducted from a decedent's estate when calculating North Carolina estate tax liability:

• decedent's debts and claims against the estate
• reasonable funeral expenses
• administration expenses
• attorney's fees
• the federal unified credit
• amount of state death taxes imposed on a charitable transfer
• transfers for public, charitable, and religious uses
• losses incurred during settlement of the estate not compensated by insurance or otherwise
• unpaid mortgages (to show actual equity of mortgaged property)

Returns. If a federal return must be filed, a North Carolina estate tax return (Form A-101) must also be filed with the North Carolina Department of Revenue within nine months of the decedent's death. Any North Carolina estate taxes owed must be paid within nine months of the decedent's death.

Generation-skipping transfer tax. North Carolina imposes a generation-skipping transfer tax equal to the federal credit.