When a South Carolina resident dies, in addition to debts, expenses of administration, and enforceable claims, the estate may have taxes deducted from amounts otherwise distributable to heirs or beneficiaries before distribution. There are many types of taxes that may be owed, but the primary tax obligations tend to be state and federal income taxes and federal estate taxes. South Carolina imposes income taxes on income earned during the course of estate administration, and there may be income and/or estate or death taxes imposed by other states or nations. Currently, South Carolina does not impose an estate tax, but other states do. In addition there is a federal estate tax imposed on estates in excess of a threshold that changes from time to time. The size of the estate determines whether there is an estate tax obligation, and the amount of income usually determines what income taxes must be paid.
The filing requirements for the federal estate tax return are based upon the total estate value for federal tax purposes. This is called the "gross estate." The gross estate is total assets located in South Carolina and elsewhere. The return (Form 706) must be filed even if no estate tax is ultimately due because of allowable deductions and credits. The federal return is due nine months after date of death. For 2012, if the gross estate exceeds $5,120,000.00, then a federal estate tax return must be filed.
In January 2013, Congress set the exemption at $5,000,000 indexed for inflation. For 2013 the figure was 5,250,000; the 2014 figure is 5,340,000.
Even when a federal estate tax return will be required, no federal estate tax is currently imposed upon property passing to a surviving spouse or to a qualified charity.
Finally, income taxes also must be paid on income reportable by the estate. The personal representative of the estate must file the decedent's final income tax returns with federal and state authorities, and pay the taxes due. If the property in the estate continues to produce income, for example, from bank accounts or stocks, in excess of $600 per year, the personal representative of the estate may have to file fiduciary returns for the estate on that continuing income. All income, whether payable to an individual before death or his estate after death, is reportable on the appropriate federal or state income tax return if the return filing threshold is exceeded.
A personal representative who fails to file required returns or who fails to pay taxes when due may incur personal liability to taxing authorities for the unpaid tax, penalties, and interest.
It is thus quite important to seek competent advice regarding filing requirements and the timely payment of taxes.
This information was prepared to give you some general information on the law. It is not intended as legal advice about any particular problem. If you have questions about the law you should consult a lawyer. If you do not know a lawyer, you can call the South Carolina Bar Lawyer Referral Service weekdays between 9 a.m. and 5 p.m. The number is 799-7100 in Richland or Lexington Counties, and 1-800-868-2284 from other parts of the state.