Estate Tax Planning in South Carolina: What You Need to Know

A note on scope before anything else. This article covers the tax side of estate planning — how assets are taxed on transfer, what basis rules mean for the people inheriting, and how gifting interacts with tax. It is not legal advice, and we do not draft wills, trusts or powers of attorney. That work belongs to an estate attorney, and the best outcomes come from the attorney and the tax adviser working on the same plan rather than in sequence.

This surprises people who have moved from states that do. South Carolina does not impose a state-level estate tax or inheritance tax, which means the estate tax question for most South Carolina residents is a federal question only.

The federal estate tax applies only above an exemption amount that is high enough that the large majority of estates never encounter it. For most families, the practical estate tax planning question is not "how do we avoid estate tax" — it is "how do we avoid creating an income tax problem for the people inheriting".

That reframing matters, because the second question applies to nearly everyone while the first applies to very few.

When someone inherits an asset, its cost basis is generally adjusted to its value at the date of death. This is the step-up in basis, and it is quietly one of the most valuable provisions in the tax code for ordinary families.

Consider a house bought decades ago for a fraction of its current value. If the owner sells it during their lifetime, the gain is taxable. If it passes on death, the heir’s basis becomes the date-of-death value — and if they sell it shortly afterwards, the taxable gain may be minimal or nil.

The planning implication runs directly counter to intuition. Transferring appreciated assets to children during your lifetime hands them your original basis along with the asset, and with it the entire embedded gain. Waiting can be worth substantially more than gifting, purely on tax grounds. This is one of the most common and most expensive mistakes made with good intentions.

There is an annual amount that can be given to any number of individuals without gift tax consequences or filing requirements. Above that, a gift generally does not create tax immediately — it reduces the lifetime exemption available at death and requires a gift tax return to be filed to track it.

So gifting is rarely about avoiding gift tax. It is about the interaction with basis, with the recipient’s circumstances, and occasionally with eligibility for benefits that consider assets. The best assets to gift are usually those with little embedded gain; the worst are highly appreciated ones that would otherwise receive a step-up.

Inherited retirement accounts are treated quite differently from other inherited assets, and they do not receive a step-up in basis. Distributions from an inherited traditional account are generally taxable income to the beneficiary, and rules on how quickly the account must be drawn down have been tightened significantly in recent years, compressing the tax impact into fewer years than beneficiaries once had.

Because of this, retirement accounts are frequently the worst assets to leave to a high-earning heir and among the best to leave to charity. Beneficiary designations on these accounts also override whatever a will says, which makes reviewing them one of the highest-value and most-neglected tasks in the whole exercise.

We handle the tax analysis and work alongside your attorney. If you do not have one, we can suggest where to start.