For many successful individuals and families in South Carolina, building a legacy is not just about personal achievement; it is about providing for the next generation. You have worked hard to accumulate assets, and you want to ensure those assets are passed on efficiently and effectively to your children, grandchildren, and chosen charitable causes.

However, a significant concern for those with substantial estates is the impact of federal taxes. A poorly planned transfer of wealth can result in a large portion of your legacy being paid to the IRS instead of your heirs.

Does South Carolina Have an Estate Tax?

This is the first and most common question we receive from clients, and the answer is a relief for many.

No, South Carolina does not have a state estate tax.

South Carolina is one of the majority of states that has eliminated its state-level estate tax (sometimes called a “death tax”). Furthermore, South Carolina does not have a state inheritance tax, which is a tax paid by the beneficiary who receives the inheritance. This simplifies planning for many South Carolina residents, but it does not eliminate the need for it. The primary concern for high-net-worth families remains the federal estate tax.

What is the Federal Estate Tax?

The federal estate tax is a tax on the transfer of assets from a person’s estate to their beneficiaries after death. It is imposed on the total value of a person’s worldwide assets, including:

• Real estate (primary home, vacation properties)
• Cash and bank accounts
• Stocks, bonds, and investment portfolios
• Retirement accounts (like 401(k)s and IRAs)
• Life insurance policy death benefits (if you own the policy)
• Business interests
• Personal property (art, vehicles, jewelry)

The federal government provides a “Basic Exclusion Amount,” often called the lifetime exemption. This is the amount of value you can pass on tax-free. Only the value of your estate above this high exemption amount is subject to the federal estate tax (which can be as high as 40%).

For 2025, the federal estate tax exemption is $13.61 million per person. For a married couple, this means they can jointly protect over $27 million. While this number seems so high that it may not apply to many, this high exemption is not permanent.

Why is Estate Tax Planning So Important Right Now? The 2026 “Sunset”

A key provision in the 2017 Tax Cuts and Jobs Act (TCJA) doubled the federal estate tax exemption. However, this provision is temporary.

On January 1, 2026, the exemption amount is scheduled to be cut in half, reverting to its pre-2017 level (adjusted for inflation). This means the exemption will likely drop to around $7 million per person.

This “sunset” provision creates a sense of urgency. Individuals and couples whose net worth is in the $7 million to $27 million range (or who expect their assets to grow into that range) have a limited window to take advantage of the current high exemption. Proactive gifting is the primary tool used to “lock in” this high exemption before it disappears.

What is the Federal Gift Tax?

The federal gift tax and the estate tax are connected under a “unified” system. When you make a significant gift during your lifetime (beyond a certain annual limit), you are technically using up a portion of your $13.61 million lifetime exemption.

Think of the lifetime exemption as a large bucket. Any taxable gifts you make during your life take water out of the bucket. Whatever amount is left in the bucket when you pass away is the amount you can transfer tax-free at death.

The key is to make gifts in ways that do not take water out of that large bucket. That is where strategic gifting comes in.

What is the Annual Gift Tax Exclusion?

The most common and straightforward gifting strategy is the annual gift tax exclusion.

Each year, the IRS allows you to give away a specific amount of money or assets to as many people as you want, completely free of any gift tax.

For 2025, the annual exclusion amount is $18,000 per person.

This means you can give $18,000 to your son, $18,000 to your daughter, $18,000 to your grandchild, and $18,000 to a friend. None of these gifts requires you to file a gift tax return (Form 709), and, most importantly, they do not use up any of your $13.61 million lifetime exemption.

What is “Gift Splitting” for Married Couples?

Married couples can combine their annual exclusions. This strategy, known as “gift splitting,” allows a married couple to give $36,000 ($18,000 from each spouse) to a single recipient in 2025.

For a couple in Greenville with three children and six grandchildren, they could gift $36,000 to each of those nine individuals, removing a total of $324,000 from their estate in a single year, all without filing a gift tax return or touching their lifetime exemptions. This is a powerful way to reduce a taxable estate over time.

What Gifts are Not Taxable at All?

Beyond the annual exclusion, there are specific types of gifts that are completely exempt from the gift tax, regardless of the amount. These do not use your annual exclusion or your lifetime exemption.

• Direct Payment of Tuition: You can pay any amount of tuition for a student (your grandchild, for example) as long as the payment is made directly to the educational institution. If you give the money to your grandchild to pay their tuition, it counts as a taxable gift.
• Direct Payment of Medical Expenses: You can pay any amount for someone’s medical care as long as the payment is made directly to the medical facility or provider. This includes payments for health insurance premiums.
• Gifts to Your Spouse: For spouses who are U.S. citizens, there is an unlimited marital deduction. You can transfer any amount of assets to your spouse, during life or at death, with no gift or estate tax.
• Gifts to Political Organizations: These are generally exempt.
• Gifts to Qualified Charities: Charitable giving is a cornerstone of many estate plans. Outright gifts to qualifying charities are not subject to gift tax and may also provide you with an income tax deduction.

How Can I Use the Annual Exclusion Effectively?

You can use the $18,000 annual exclusion in several ways:

• Simple Cash Gifts: Writing a check is the simplest method.
• Gifts of Assets: You can gift stocks, bonds, or interests in a family business. However, you must be careful about valuation and potential capital gains issues.
• Funding a 529 College Savings Plan: Contributions to a 529 plan are considered gifts. You can use your $18,000 annual exclusion to fund a plan for a grandchild.
• “Superfunding” a 529 Plan: The law allows you to “front-load” a 529 plan by making five years’ worth of annual exclusion gifts in a single year. In 2025, this means you (and your spouse) could contribute $90,000 (or $180,000 for a couple) to a grandchild’s 529 plan at one time, tax-free, by electing to spread the gift over five years.
• Gifts to a Trust: You can make your annual exclusion gifts to a trust, but this requires specific legal language to ensure it qualifies.

Using Trusts as a Gifting Strategy

For many families, simply giving away large sums of money is not an ideal solution. You may be concerned about a beneficiary’s age, financial maturity, or exposure to creditors or divorce.

This is where trusts become an indispensable tool. A trust allows you to make a completed gift for tax purposes while maintaining control over how and when the assets are used.

• Irrevocable Life Insurance Trust (ILIT): Life insurance death benefits are included in your taxable estate if you own the policy. An ILIT is a trust designed to be the owner and beneficiary of your life insurance. You make gifts to the ILIT (often using your annual exclusion) to pay the policy premiums. At your death, the proceeds pass into the trust, free of estate taxes, and are managed for your family according to your rules.
• Crummey Trusts (or Minor’s Trusts): To have a gift to a trust qualify for the $18,000 annual exclusion, the beneficiary must have a temporary right to withdraw the money. This right, named after a court case, is known as a “Crummey power.” This type of trust allows you to fund a trust for a child or grandchild using your annual exclusion, even if you do not want them to have access to the funds for many years.
• Grantor Retained Annuity Trust (GRAT): This is a more advanced strategy where you transfer an asset that is expected to grow quickly into a trust, while retaining the right to receive an annuity payment for a set number of years. If the asset grows faster than the IRS-mandated interest rate, the “excess” growth passes to your beneficiaries tax-free.
• Charitable Trusts: For philanthropic clients, Charitable Remainder Trusts (CRTs) or Charitable Lead Trusts (CLTs) can help you support a cause you care about, receive an income stream, and remove assets from your estate.

What is the Generation-Skipping Transfer (GST) Tax?

The government imposes a separate, additional tax on transfers to individuals who are two or more generations younger than the donor (like a grandchild). This is the Generation-Skipping Transfer (GST) Tax.

The GST tax has its own high exemption (also $13.61 million in 2025) that is also scheduled to sunset in 2026. Careful planning is required to ensure that you properly allocate both your estate tax exemption and your GST tax exemption to protect transfers to grandchildren, often through a “Dynasty Trust.”

What is Portability?

For married couples, “portability” is a valuable provision. It allows a surviving spouse to use the “Deceased Spousal Unused Exclusion” (DSUE) of the spouse who passed away first.

For example, if a husband passes away in 2025 with an estate of $3.61 million, he has $10 million of his $13.61 million exemption remaining. His widow can “port” that $10 million over, adding it to her own exemption.

However, portability is not automatic. The surviving spouse must file a federal estate tax return (Form 706) for the deceased spouse, even if no tax is due, to make the portability election. Failing to file this return can result in the loss of a multi-million dollar tax exemption.

What are the Risks of Incomplete or “DIY” Gifting?

While gifting is powerful, it is filled with potential pitfalls if not guided by knowledgeable legal counsel.

• Loss of “Step-Up in Basis”: When a beneficiary inherits an appreciated asset (like stock or real estate) at death, their “cost basis” in that asset is “stepped up” to its fair market value on the date of death. This means they can sell it immediately and pay no capital gains tax. If you gift that same appreciated asset during your life, the beneficiary receives your original (likely low) cost basis. This could result in a massive capital gains tax bill for them, which may be higher than any potential estate tax.
• Gifts with “Strings Attached”: If you give away an asset but retain control or an interest in it (like gifting your house but continuing to live in it rent-free without a formal agreement), the IRS is likely to pull that asset back into your estate, defeating the purpose.
• Medicaid Look-Back Period: This is a separate but related issue. If you need long-term care in the future, gifts made within five years of applying for Medicaid can result in a penalty period, making you ineligible for benefits.
• Valuation Issues: Gifting assets like interests in a family-owned business or real estate requires a qualified appraisal to establish the value of the gift. A wrong valuation can lead to serious problems with the IRS.

How to Build a Coordinated Gifting Strategy

A sound gifting strategy is not a single action but an ongoing, coordinated part of your complete estate plan. The process should involve:

• A Full Asset Inventory: You cannot plan without knowing the full, current value of all your assets.
• Defining Your Goals: Do you want to reduce taxes, provide for education, support charity, or protect a family business? Your goals will define the strategies.
• Consulting Your Legal and Financial Team: An experienced estate planning attorney, a Certified Public Accountant (CPA), and a financial advisor must work together. Your attorney drafts the legal structures (like trusts), your CPA handles the tax returns (like the Form 709 gift tax return), and your financial advisor helps select the right assets to use for gifting.
• Regular Reviews: Your family, your assets, and the tax laws will change. Your estate plan should be reviewed every few years, and especially after any major life event or new tax legislation.

Building Your South Carolina Legacy

The current high federal estate tax exemption, combined with its scheduled “sunset” in 2026, presents a unique and limited opportunity for families in South Carolina. By implementing a proactive and thoughtful gifting strategy, you can lock in these high exemptions, minimize potential tax burdens, and ensure the wealth you have built passes to your loved ones in the most protected and efficient way possible. The complexities of tax law and trust creation require skilled and dedicated legal guidance. At the DeBruin Law Firm, we are committed to helping families in Greenville and across South Carolina navigate these important decisions. We can help you analyze your estate, identify your goals, and implement a tailored plan that reflects your values and secures your family’s future.

If you are ready to build a comprehensive plan to protect your legacy, we invite you to contact us at (864) 982-5930 or send a message online to schedule a consultation.