Increased Federal Estate Planning Exemption Amounts are now Permanent
The 2026 inflation-adjusted estate planning exemption amounts and related numbers represent a landmark shift for North Carolinians. While the “sunset” of the Tax Cuts and Jobs Act was once a looming threat, the recent passage of the One Big Beautiful Bill Act (OBBBA) has replaced that uncertainty with a historically high, “permanent” exemption floor. For residents of North Carolina, these updates offer a rare alignment of generous federal limits and a favorable state tax environment.
$15 Million Per Person Exemption
For 2026, the federal estate and gift tax basic exclusion amount has risen to $15,000,000 per individual, allowing married couples in the Tar Heel State to shelter a staggering $30,000,000 from federal transfer taxes. This is particularly significant because North Carolina does not impose a state-level estate or inheritance tax. Unlike states such as Kentucky or Maryland, North Carolinians can focus their planning entirely on federal thresholds. This $15 million per person “free pass” allows families with high-growth assets—such as shares in Research Triangle tech startups, Charlotte real property developments, or expansive coastal real estate—to move significant wealth into irrevocable trusts today, locking in the exemption while removing all future appreciation from their taxable estate.
Navigating Income Tax Inefficiencies of Irrevocable Trusts
While the 2026 transfer tax limits are high, federal income tax brackets for trusts remain brutally compressed. In 2026, the top 37% federal tax rate applies to trust income exceeding just $16,000. When you add the North Carolina flat individual income tax rate of 4.25% (which applies to trusts as well), an undistributed dollar in a “non-grantor” trust can be taxed at over 41% almost immediately.
To mitigate the income tax burden, our clients are increasingly relying on Grantor Trust flexibility. By intentionally designing a trust to be “defective” for income tax purposes (an Intentionally Defective Grantor Trust or IDGT), the tax burden shifts from the irrevocable trust’s compressed income tax brackets to the grantor’s personal tax return. This structure effectively allows the trust assets to grow “income-tax free” for the beneficiaries, as the grantor pays the tax bill. Because the IRS does not view the grantor’s payment of these taxes as an additional gift, this strategy acts as a secondary way to transfer wealth without using any more of the grantor’s $15 million exemption.
Refocus on Balancing Estate Tax Planning and Income Tax Planning
Ultimately, the 2026 adjustments prove that while “death taxes” may be off the table for most North Carolinians, an irrevocable trust’s income tax implications should be carefully considered and discussed with clients. The higher $15 million exemption is not a signal to stop planning; it is a signal to refocus on basis step-ups and grantor trust flexibility.
Charlotte-based attorney Christian Perrin is a North Carolina Bar Board Certified Specialist in Estate Planning and Probate Law. Based in Charlotte, Christian and his team serve clients throughout North Carolina and South Carolina.
Disclaimer: This information is intended to stimulate thought and discussion and to provide readers with useful ideas in the area of estate planning. However, this information does not constitute and should not be treated as legal advice or tax advice regarding the use of any particular estate planning technique, device or suggestion. Our law firm does not assume any responsibility for any individual’s reliance on the information presented. Each reader should verify independently all statements made before applying them to a particular fact pattern and should determine independently the legal and tax and other consequences of using any particular device, technique or suggestion.