North Carolina Estate Plans, Wills, and Trusts
Nithin B. Reddy
Updated March 2018
It’s good to have an estate plan in place so that your loved ones are cared for when the time comes. Before you can consider whether you want a basic estate plan or a comprehensive estate plan, it’s important to think generally about your situations and the goals of your estate plan. This article is meant to help you start thinking about many of the things that you should consider before finalizing your own plan.
Estate Planning Terms
Before we can talk about estate plans themselves, it’s useful to understand some basic terms in what can be the confusing world of estates, wills, and trusts:
- Estate Instruments: An estate instrument is simply a crafted document, regarding one’s property, that is legally recognized to have effect on the distribution of an estate. Common estate instruments include wills and trusts.
- Full Estate: An estate is all the money and property owned by a person at death. In some cases, the estate can also include certain claims – a person who is owed money but passes before collection, for example, can give the person’s estate a claim to the owed money. The full estate is all the money and property owned by a person at death and can be a confusing term because state probate courts often deal with only a portion of the full estate. On the other hand, federal tax code often deals with the full estate. In terms of estate planning, you want to have a plan for your full estate.
- Non-Probate Estate: This is the portion of the estate that will pass outside the jurisdiction of the probate court, although certain court procedures can transfer property from the non-probate estate to the probate estate. For example, though in North Carolina real property is transferred outside of probate court, the executor/personal representative can petition the court to accept real property as a part of the probate estate. Other common examples of non-probate estate property are pay on death bank accounts, or life insurance policies with named living beneficiaries.
- Probate Estate: The probate court is a court which oversees the administration and distribution of the probate estate. Many court clerks will simply refer to the probate estate as the estate, so don’t be confused by this. For more information, please see our articles about the types of probate administration or the deadlines involved in formal administration.
Estate Planning Considerations
An average estate plan will simply handle the distribution of your assets. A great estate plan is custom-tailored to your specific needs and considerations. Here’s a list of things of you should consider before determining what sort of estate instruments and estate plan you want to create:
- Speed of Distribution: As a general rule, instruments that let your property pass through the non-probate estate are generally quicker. Life insurance, pay-on-death beneficiary bank accounts, joint tenancy with the right of survivorship, all instantly transfer once proof of death is shown. Trusts, depending on when and how they are created can have slow or quick distribution. On the other hand, property that passes through the probate estate typically takes longer, anywhere from a few months to a year, or even more, depending on the complexity of the probate estate.
- Cost of Distribution: Non-tax distribution costs are generally low regardless of plan. However, if you are interested making sure as much of your property goes to your beneficiaries, you should know that in North Carolina, the personal representative of the probate estate, or the personal representative’s attorney, can ask for up to 5% of the probate estate’s value in payment for administration (capped at $6000), in addition to relative minor court fees for paperwork. The personal representative is typically the will-named executor of the estate.
- Vulnerability of Distribution: It’s important to think about who might challenge your estate plan. Common examples are disgruntled spouses or children and other family members, though it can also include organizations to whom you made promises of distribution. For example, North Carolina law enshrines the right of married spouses to claim a minimum share of the full estate as an alternative to an estate plan that does not give a minimum share to the spouse (though there are instruments that can be used to fulfill this without an outright distribution of the minimum share at one time). The NC martial elective share, as of October 2013 is a sliding scale, being anywhere from 15% to 50% of the full estate, as shown in the diagram below. Similarly, although North Carolina allows children to be disinherited, any biological or adopted children not named and specifically disinherited in the will can make a claim against the estate. There is also a life share, which amounts to using 1/3 of the real property for the duration of the spouses life. Both shares can often invalidate or diminish a will's distribution.
- Estate Taxes: Although North Carolina has no estate tax, federal estate taxes can be a concern if your estate is over $11.2 million as of January 2018. Gifts over the yearly federal individual gift limit throughout your lifetime reduce the amount of the federal estate exclusion. However, spouses, with the proper estate planning, can receive the other spouse’s remaining federal tax estate exclusion so that the married couple, can in the entire, have $22.4 million in federal estate tax exclusion if things are done properly.
- Estate Debts: If you have a lot of debts, it can burden your administration and even endanger your distribution. It can also cause a lot of headache to your beneficiaries if the estate is not planned properly. Property that goes through the probate estate is typically the best way to ensure that your beneficiaries receive your property without lingering creditor claims, though as always, exceptions apply.
- Ongoing control: Also known in legalese as “deadhand control,” if you wish to give your property but also wish to have a lot of ongoing control past the initial property distribution – for example you wish to give your spendthrift friend some money in a spendthrift trust where they can only spend a small amount each year on things other than say clothes – you’ll typically have to create an ongoing trust. This typically also increases the cost of distribution as the trustee administering the trust has a right to be paid for his or her services.
- Minor or Incapacitated Beneficiaries: In other cases, the law requires that an ongoing trust be created for major gifts to minor or incapacitated beneficiaries as it is presumed that they cannot properly oversee the property that you gave them. It’s better that you plan for this and select the right trust and right trustee than leaving these things to the court to figure out after you are gone. Similarly, it’s important to think about gifts to older beneficiaries who may be incapacitated by the time of the gift, and how you want that to be handled or administered.
- Personal Incapacitation: Although not strictly an aspect of post-death estate planning, planning for medical or mental incapacitation, due to age or medical trauma, is very important as it can ensure your assets and property are used or safeguarded in the way you wish to have them safeguarded rather than spent when you have no say in the matter. Common examples include health care directives or living will which state your wishes about life support or other power of attorney capacities for property that need managing.
- Estate Execution: At the minimum, for the probate of any will, the North Carolina court will appoint a personal representative. The court prefers to appoint a willing and named executor in the will, but if no executor is named, it will appoint other family members, interested parties, or a public administrator. Similarly, each trust often requires a trustee to carry out the goals of the trust, and it is better if you have a willing and named trustee. The estate can become more complex if you have multiple trusts with different trustees, along with a different personal representative, but sometimes spreading the responsibility of the estate administration in a divisive family may be a better or worse option, depending on how you feel about the issue. You should strive to make sure all personal representative/executors and trustees know that they are named and are willing to fulfill the role, and should also have willing and able backups named in the estate instruments as well.
As you can see, there's a lot that goes into an estate plan, and consulting an attorney to help you craft a great one can be crucial. A well-planned estate is a great way to make sure your wishes are carried out and your passing is a peaceful one without any of the stress that can be associated with poorly planned estates. It’s never too early to start thinking about your plan and your legacy. We encourage you to call our office for a free consultation at (919) 719-3462.