What Texans Should Know About Estate Taxes

 Posted on February 01, 2022 in Divorce

Texans should know certain basic facts about estate taxation in order to better plan for the future. If you’re going through a divorce, estate taxation may be even more relevant because the exemption will be halved for a single, unmarried individual. What many Texans don’t realize is that the State of Texas is quite friendly to its residents from a tax perspective. Not only does Texas lack a personal state income tax, it also has a resident-friendly policy on estate taxes.

Texas Law on Inheritance & Estate Taxes

An estate tax is a tax imposed on the estate of a decedent. This means that the tax will be collected from the estate itself prior to any disbursements to heirs. An inheritance tax, on the other hand, is a tax imposed on the beneficiaries of the estate. This means that, in theory, the beneficiaries are responsible for paying the inheritance tax. In jurisdictions which impose an inheritance tax, typically the tax is only imposed on certain beneficiaries, while other beneficiaries (such as surviving spouses and direct descendants) are exempt.

At the present time, the State of Texas doesn’t impose either a state level estate tax or a state level inheritance tax. This is very resident friendly!

Texas Estates May Be Subject to Out-of-State Estate Taxation

Although Texans will not have to deal with either an estate tax or inheritance tax from the State of Texas, this doesn’t mean that they are free from all possible state estate or inheritance taxes. There may be scenarios in which state level estate tax is imposed on the estate of a Texan. These scenarios involve Texans whose estate partially consists of out-of-state property. For example, if a Texan owns a piece of real estate in Maryland valued at $6 million, then that person may be required to pay the Maryland state level estate tax (or the beneficiaries may face the state inheritance tax) after death.

Texas Estates are Subject to Federal Estate Taxation

Perhaps the most critical thing that Texans should be aware of when it comes to estate taxation is the current federal estate tax exemption. Right now, the federal government imposes a federal estate tax on all U.S. citizens, but the current individual exemption is $11.7 million. This means that the federal estate tax (which is 40%) only applies to the value of an estate beyond that exemption. So, if a person passes away with an estate worth $13.7 million, then that person's estate will incur an estate tax on $2 million, which is the excess over the exemption. Importantly, the federal exemption is doubled for married couples, as married couples are often treated as a single unit under the law; this means that married couples will be able to shield $23.4 million. That is a substantial sum! This should be encouraging news for those who are worried about the federal estate tax.

Texas’ estate and inheritance tax laws may be quite friendly, but Texans still need to grapple with complex estate planning issues, such as wills and intestate succession laws. In the future, we will discuss both of these complex topics.

Contact The Ramage Law Group for More Information

If you’d like to learn more about the federal estate tax, or you have a case which requires immediate assistance, get in touch with The Ramage Law Group now by calling 972-562-9890.