South Carolina does not have an estate tax or an inheritance tax. The state repealed its estate tax for deaths on or after January 1, 2005, and it never taxed beneficiaries for receiving an inheritance.1South Carolina Department of Revenue. Fiduciary The only death tax a South Carolina resident can owe is the federal estate tax, and that applies only when the gross estate exceeds $15 million per person in 2026.2Internal Revenue Service. What’s New — Estate and Gift Tax
No State Estate or Inheritance Tax
Beneficiaries in South Carolina owe nothing to the state simply for inheriting money, real estate, or other property. There is no state estate tax return to file either.
One filing does sometimes catch executors off guard, and it is not a death tax. If the estate or a resulting trust earns income from South Carolina sources during administration, the fiduciary may need to file the SC1041 with the South Carolina Department of Revenue.1South Carolina Department of Revenue. Fiduciary That is an income tax filing on income the estate earns, not a tax on the transfer itself.
The Federal Estate Tax in 2026
The federal basic exclusion amount for 2026 is $15,000,000 per individual.2Internal Revenue Service. What’s New — Estate and Gift Tax Estate value above that line is taxed on a graduated scale that reaches a top marginal rate of 40%.
The One, Big, Beautiful Bill Act, signed on July 4, 2025, made this $15 million floor permanent. It replaced the temporary Tax Cuts and Jobs Act increase that had been scheduled to drop back to roughly $7 million at the end of 2025. Starting in 2027, the $15 million figure will be indexed for inflation.3Office of the Law Revision Counsel. 26 U.S. Code 2010 – Unified Credit Against Estate Tax The number will only go up from here.
Married Couples: Up to $30 Million
Property left to a U.S. citizen spouse passes free of federal estate tax under the unlimited marital deduction.4Office of the Law Revision Counsel. 26 USC 2056 – Bequests, Etc., to Surviving Spouse The tax is not eliminated, only deferred until the surviving spouse dies.
Portability then lets the survivor add any exclusion the first spouse did not use to their own $15 million. Combined, that is up to $30 million for a married couple in 2026. Locking in portability requires filing Form 706 after the first death, even when no tax is owed.5Internal Revenue Service. Frequently Asked Questions on Estate Taxes
When Form 706 Must Be Filed
The executor or personal representative must file IRS Form 706 when the decedent’s gross estate plus prior taxable gifts exceeds the exclusion for the year of death. For a 2026 death, that is $15 million. The return is due nine months after the date of death. An automatic six-month extension is available by filing Form 4768 before the original deadline.5Internal Revenue Service. Frequently Asked Questions on Estate Taxes
Filing Only to Preserve Portability
An estate below the threshold owes no tax and is not required to file. Filing anyway can still be worth it for a surviving spouse. If the first spouse used only $3 million of their $15 million exclusion, the surviving spouse can port the remaining $12 million and combine it with their own $15 million.
Missing the nine-month deadline does not always kill the election. Under Revenue Procedure 2022-32, an estate that was not otherwise required to file can make a late portability election by submitting a complete Form 706 within five years of the date of death, with no user fee.6Internal Revenue Service. Revenue Procedure 2022-32 Estates that were required to file because they crossed the threshold do not qualify for this simplified relief.
What Counts in the Gross Estate
The federal gross estate is broader than most people expect. It includes real property, bank and brokerage accounts, business interests, personal property, and retirement accounts. Assets in a revocable trust are included because the grantor kept control during life.
Jointly Owned Property
Titling matters. When spouses hold property as joint tenants with right of survivorship, only the decedent’s share is included. When the co-owner is anyone other than a spouse, the IRS presumes the full value belongs to the decedent unless the co-owner can prove their financial contribution. Keep records if you co-own with a sibling, partner, or friend.
Life Insurance
Life insurance proceeds are included in the gross estate if the decedent held any incidents of ownership at death, including the right to change beneficiaries, borrow against the policy, surrender it, or assign it.7Office of the Law Revision Counsel. 26 USC 2042 – Proceeds of Life Insurance A $2 million policy can push an otherwise below-threshold estate into taxable territory.
Transferring a policy to an irrevocable life insurance trust removes it from the gross estate, but the transfer must occur more than three years before death. Die within that window and the proceeds get pulled back in as if the transfer never happened.8Office of the Law Revision Counsel. 26 U.S. Code 2035 – Adjustments for Certain Gifts Made Within 3 Years of Decedent’s Death
Ways to Shrink a Taxable Estate
Annual Gift Exclusion
The annual gift tax exclusion for 2026 is $19,000 per recipient.9Internal Revenue Service. Frequently Asked Questions on Gift Taxes You can give that amount to any number of people each year without filing a gift tax return or touching your lifetime exclusion. A married couple can combine to $38,000 per recipient. Over a decade of consistent gifting to children and grandchildren, that removes real value from the taxable estate.
Charitable Bequests
Gifts at death to qualifying charitable, religious, educational, and veterans’ organizations are fully deductible from the gross estate.10Office of the Law Revision Counsel. 26 USC 2055 – Transfers for Public, Charitable, and Religious Uses A charitable remainder trust can pay income to named beneficiaries for a set term and then pass the remainder to charity, reducing the taxable estate while still supporting family in the meantime.
Step-Up in Basis for Heirs
The most valuable federal tax benefit for South Carolina heirs is not the estate tax exemption. When you inherit property, your cost basis resets to the fair market value on the date of death.11Office of the Law Revision Counsel. 26 U.S. Code 1014 – Basis of Property Acquired From a Decedent If a parent bought a Charleston house for $150,000 and it was worth $900,000 at their death, your basis is $900,000. Sell for $920,000 and you owe capital gains tax on $20,000, not on $770,000.
The step-up applies to real estate, stocks, business interests, and collectibles, and it applies regardless of estate size. Most South Carolina families will never owe federal estate tax under the $15 million exemption, but nearly all of them will benefit from the step-up.
Non-Citizen Surviving Spouse
The unlimited marital deduction does not apply when the surviving spouse is not a U.S. citizen. To defer the estate tax, the estate must use a Qualified Domestic Trust with at least one U.S. citizen or domestic corporation trustee. The QDOT election is made on Form 706 and cannot be filed more than one year after the return’s due date, including extensions.12Office of the Law Revision Counsel. 26 USC 2056A – Qualified Domestic Trust For trust assets over $2 million, the trustee must be a U.S. bank or the individual trustee must post a bond or irrevocable letter of credit equal to 65% of the trust’s fair market value.
Nonresidents Who Own South Carolina Property
If you live outside South Carolina but own real estate or tangible personal property in the state, there is no South Carolina estate tax on those assets.1South Carolina Department of Revenue. Fiduciary The property is still part of your federal gross estate. If your home state imposes its own estate tax that reaches out-of-state property, you may have filings in more than one place.
Penalties for Missing the Deadline
When Form 706 is required and the executor files late, the IRS imposes a failure-to-file penalty of 5% of the unpaid tax for each month the return is late, up to 25%.13Internal Revenue Service. Failure to File Penalty Interest accrues on the unpaid balance from the original due date.
Distributing estate assets before settling the tax bill creates personal risk for the executor. The IRS can pursue heirs individually for unpaid estate tax when the estate no longer has assets to cover it, and executors who willfully fail to file or misstate values can face fraud penalties. The automatic six-month extension is free, so there is little reason to miss the deadline when Form 4768 is available.