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Texas: State and Federal Estate Taxes

Estate taxes can be confusing and stressful. But if you're in Texas, you're in luck! Texas is one of the few states that doesn’t impose an estate tax, which can be a huge relief. We'll answer questions like does texas have an estate tax, does texas have an inheritance tax and how to deal with estate taxes on the federal level.

Table of contents

Key Takeaways:...Read more

Does Texas have an estate tax?...Read more

Does Texas have an inheritance tax?...Read more

The tax situation in Texas...Read more

How to reduce federal estate tax...Read more

Key Takeaways:

There is no death tax in Texas, only federal estate taxes.
Texas does not collect state inheritance tax.
The federal estate tax exemption is $13.61 for single filers and $27.22 for married couples.

Does Texas have an estate tax?

When it comes to the Texas estate tax, there’s actually some good news: Texas doesn’t have one. That’s right—there is no state-level estate tax, often referred to as the “death tax,” in Texas. This means if you’re a resident, your estate won’t face any additional taxes from the state when you pass away. It’s a relief to know that more of your assets will go directly to your loved ones without the state taking a share. While Texas doesn’t have its own estate tax, the federal government does impose one. As of 2024, the federal estate tax only kicks in if your estate is worth more than $13.61 million for an individual. If an estate exceeds these thresholds, it will be subject to federal estate tax rates, which range from 18% to 40%. Most folks don’t need to worry about this, but if your estate is close to that amount, it’s wise to consult with a tax professional or estate planner.

Infographic entitled Federal Estate Tax Rates showing the tax rates for non state level estate tax.

Does Texas have an inheritance tax?

Good news for Texans: if you're wondering, "Is there an inheritance tax in Texas?" the answer is no. Texas does not have an inheritance tax. So, if you’re receiving assets from someone who lived in Texas, you won’t have to worry about paying any Texas state inheritance tax on what you inherit. This is a relief, especially during a time when you're already dealing with the loss of a loved one. Let’s break it down a bit further. Inheritance tax and estate tax are different. Only states can collect inheritance taxes—there’s no inheritance tax at the federal level. Inheritance tax is paid by the person who receives the property, while estate tax is taken from the deceased person’s estate before anything is passed on to heirs. Texas used to have a state inheritance tax, but it was abolished on September 1, 2015. So, as a Texas resident, you’re spared from both inheritance and estate taxes. However, if you live in another state and inherit under a Texas will, check with a lawyer in your own state. They can help you with any rules that might apply to you.

The tax situation in Texas

Texas is known for being a tax-friendly state, especially when it comes to income taxes. There’s no state income tax, which means more of your paycheck stays in your pocket. This can be a huge benefit for families and individuals looking to save more money or enjoy a higher standard of living without the burden of extra state taxes. However, when it comes to property taxes, Texas is a bit different. Property taxes here are higher than the national average, mainly because the state relies on them to fund schools, roads, and other essential services. If you own a home or property, it’s important to be prepared for these costs, as they can be a significant part of your annual expenses. For those concerned about estate planning, Texas provides some relief. There is no Texas estate tax or inheritance tax in Texas. This means that if you’re planning to leave assets to your loved ones, you won’t have to worry about additional state taxes eating into what you leave behind. Similarly, there’s no Texas gift tax, so you can give gifts of cash or property without the state imposing extra taxes. Sales tax is another factor to consider. The base sales tax rate in Texas is 6.25%, but local taxes can bring this up to 8.25%. While it’s a bit higher when you add in local taxes, it’s a part of how Texas offsets not having a state income tax.

Infographic entitled Texas Taxes listing taxes that residents have to pay instead of estate tax in Texas.

How to reduce federal estate tax

Reducing federal estate tax for estates over $13.61 million might seem daunting, but there are specific actions you can take to manage it effectively. Start by considering an irrevocable trust. When you transfer assets into this trust, those assets are no longer part of your estate. This can significantly reduce your federal estate tax liability because the assets in the trust won’t be counted when calculating the tax due. Next, make use of the lifetime gift exemption. For 2024, you can gift up to $13.61 million per person without it being included in your estate’s value. This means you can lower your estate’s size and tax burden by giving away money or property to loved ones while you’re still alive. Charitable donations offer another way to reduce your federal estate tax. By leaving a portion of your estate to charity, you can lower the taxable amount. Setting up a charitable remainder trust can be particularly useful here. It allows you to receive income from the trust during your lifetime, with the remaining assets going to charity after you pass away, which provides both tax benefits and supports your favorite causes. Don’t overlook the annual gift tax exclusion, which lets you give up to $18,000 per person each year without those gifts being counted toward your estate. This strategy helps you gradually reduce the size of your estate over time. In Texas, you don’t have to worry about additional state taxes like a death tax or inheritance tax, as Texas doesn’t have these. However, if you reside in another state and inherit from a Texas estate, you should be aware of your own state’s tax rules. For large estates, you might also consider strategies like spending down assets, giving them away before you pass, or making substantial charitable contributions. Some people even explore relocating to countries with more favorable tax laws, though this involves broader considerations. Finally, consulting with an estate planning attorney or tax advisor is essential. They can provide tailored advice and help you implement these strategies effectively, ensuring you minimize your federal estate tax and preserve more of your wealth for your heirs.

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