If you have parents that live in states other than South Carolina, it may be wise to determine the exposure their estate has to the inheritance tax. Why? The exposure their estate has equates to the exposure your inheritance has to the inheritance tax, and or the state estate tax where they reside.
To help you understand the above statement, there is a difference between the inheritance tax and the estate tax. They are both excise taxes. For South Carolina residents, the only excise tax that poses an immediate threat is the federal estate tax. South Carolina does not have an inheritance tax and it does not effectively have its own state estate tax. However, many states such as Pennsylvania, Maine, New York, New Jersey, and North Carolina, to name a few, have additional excise taxes that pose a threat to what you may inherit. If you determine that there may be an extra tax bite on what you may inherit because your parents reside in a state with excise taxes above and beyond the federal estate tax, it is advisable to have them consult with their attorney to see what may be done to limit this exposure.
Many of our clients who have real estate in South Carolina and other states undergo an analysis to determine which state would be the best one to reside in based on the following two main factors: (1) the applicable excise taxes, and (2) the real property taxes (and the break you get if South Carolina is your primary state of residence). In almost every case where we have undergone this analysis, we have determined South Carolina to be the state with more favorable rules. To become a South Carolina resident, you need a South Carolina Driver’s license. The key point is you have some role in determining what your domicile will be and also what your parents domicile will be. Every case is unique, but forum shopping for residency is one of the many matters we look at to maximize the benefit for our client’s family.