A Brief(ish) Introduction to Texas Inheritance and Estate Taxes

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Both estate taxes and inheritance laws are complicated at best, and estate planning can feel overwhelming. When these topics align, even the most intrepid among us are inclined to take a step back. This does not, however, have to be the case. With a bit of guidance from a dedicated estate planning attorney at Kaman Law, you will be well on your way to better understanding Texas estate taxes and inheritance laws and how they relate to your estate planning needs.

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Is Texas Tax Friendly?

You will no doubt be glad to learn that the State of Texas has some tax-friendly laws. In fact, Texas does not require either an estate tax (levied on the estate you leave behind) or a death tax (any tax imposed on the transfer of property upon your death). Additionally, the state no longer has an inheritance tax, which means that if your loved ones inherit from you, they will not be taxed on the assets they receive.

All told, these tax benefits can amount to a significant financial advantage. While there is a federal estate tax, it only applies to the wealthiest estates. Because the distinction between estate and inheritance taxes is often confusing, it is a good idea to take a closer look at both.

Does Texas Have Estate Taxes?

Texas does not have state estate taxes, but Texas is subject to federal estate taxes. A federal estate tax is a tax that is levied by the federal government and that is based on the net value of the decedent’s estate. These federal estate taxes are paid by the estate itself. As noted, only the wealthiest estates are subject to this tax. For 2021, the IRS estate tax exemption is $11.7 million per individual, which means that a person could leave $11.7 million to her heirs and pay no federal estate tax, while a married couple could collectively shield$23.4 million.

Does Texas Have an Inheritance Tax?

An inheritance tax is a tax that is levied at the state level on the assets that beneficiaries inherit from an estate. Texas repealed its inheritance tax in 2015.

Recap Regarding Texas Tax Law

Federal estate taxes are levied against an estate before its beneficiaries inherit, and inheritance taxes are levied against the assets that beneficiaries inherit (after they inherit them). Further, while Texas does not impose an estate or inheritance tax, there are instances when such taxes are levied against inheritances that arise in Texas. For example, there may be instances of estates that involve property in another state (that does have an estate tax).

If you own considerable property in a state that does have estate taxes, such as Maryland, your Last Will and Testament’s beneficiaries could be subject to both state and federal estate taxes (for 2021, the federal estate tax exemption amount per individual is $11.7 million). The tax and estate planning laws are challenging, but the experienced estate planning attorneys at Ibekwe Law, PLLC in Texas can help you understand all of your legal options regarding Texas estate taxes and inheritance laws as they relate to your estate planning.

Texas Inheritance Laws

If you die without a Last Will and Testament (will), or other estate planning document, you lose the ability to guide your financial legacy and the execution of your estate plan. Dying without a will is referred to as dying intestate, and the distribution of your assets will be left to Texas’s intestate succession process, which will determine how your estate will be handled. If you have an estate plan that includes a will in place, however, it puts you in the driver’s seat –and allows you to bypass most of the state’s inheritance laws, which generally apply to those estates that are not guided by wills.

Wills and Trusts in Texas

When you take the time to create an estate plan that specifically addresses your wishes as they relate to your estate –and that takes all tax implications into consideration –it allows you to distribute the estate you have worked so hard to establish and grow according to your own specifications. Toward this end, you will engage in the following:

  • Appointing an executor, personal representative, or trustee of your estate, who will ensure that your property is distributed according to your wishes.
  • Assigning heirs to the property they will receive
  • Creating any trusts (for beneficiaries who will receive their assets at a predetermined date in the future or according to a predetermined schedule)

In Texas, if you have a solid, valid estate plan(that includes only legal specifications), it is almost assured that it will be executed exactly as you planned. 

What Happens If I Die Without a Will in Texas?

If you have no will, the state of Texas’ inheritance laws apply. Further, there are extenuating circumstances that can render your estate intestate (even if you do have a will), including:

  • Your will does not have the ability to disperse all your estate’s property due to a beneficiary’s death
  • An outside party manages to successfully contest your will

An experienced estate planning attorney will work closely with you to help ensure that you have a solid will that provides you with the peace of mind you are looking for regarding your estate.

Now Is a Good Time to Get Started

If you have yet to dip your toe in estate planning, now is a good time to get started. If you have an estate plan in place, now is a good time to update. Taking the time to seriously consider your estate plan demonstrates your commitment to your financial legacy and to your loved one’s ongoing financial well-being. Further, the sooner you begin drafting and creating your estate plan, the easier it will be to keep track of your assets, which you can incorporate as you acquire them over the years.

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