Do I Have to Pay Estate Taxes When I Die?

Estate taxes can be a significant concern when planning for the future, and many individuals want to know whether their estate will be subject to taxes when they pass away. For residents of Texas, the good news is that the state itself does not impose an estate tax. However, federal estate tax laws may still apply depending on the size of the estate.

Texas and Estate Taxes

In Texas, there is no state estate tax, sometimes referred to as a "death tax." This means that if you are a Texas resident, your estate will not owe any taxes to the state upon your death. This is advantageous for Texans, as some states impose their own estate or inheritance taxes, which can reduce the amount of assets passed on to heirs. The absence of a state-level estate tax simplifies the estate planning process and often allows for more flexibility in passing on wealth to future generations.

Federal Estate Taxes

While Texas does not have its own estate tax, estates may still be subject to federal estate taxes. The federal estate tax exemption for 2024 is $13.61 million per individual. This means that if the total value of your estate is less than this amount, no federal estate tax will be owed. For married couples, this exemption can be doubled if proper planning is done, allowing up to $27.22 million in assets to pass tax-free.

If the value of your estate exceeds the federal exemption threshold, any amount above that limit will be subject to federal estate taxes. The current federal estate tax rate can reach up to 40%, so planning to minimize the taxable estate is essential for high-net-worth individuals.

How to Minimize Federal Estate Taxes

While Texas residents may not need to worry about state estate taxes, careful planning is essential to minimize or avoid federal estate taxes. Some strategies include:

• Gifting assets during your lifetime: As of 2024, you can reduce the size of your estate by gifting up to $18,000 per recipient each year without incurring federal gift tax.
• Establishing trusts: Certain types of trusts, such as irrevocable life insurance trusts (ILITs), can be used to remove assets from your taxable estate.
• Utilizing the marital deduction: Assets left to a spouse are not subject to estate taxes due to the unlimited marital deduction.

With the right planning strategies, you can minimize the impact of federal estate taxes and ensure that more of your assets are passed on to your loved ones. It’s essential to consult with an estate planning attorney to create a plan that aligns with your financial goals and takes full advantage of the tax laws in place. Schedule a consultation with The Heights Law Group by calling us at (832) 810-3373 or visit https://heightslawgroup.com/contact-us. We are an estate planning and probate law group located in Houston, TX.