What taxes should I be aware of when planning my estate? 

What taxes should I be aware of when planning my estate? Texas is one of the thirty-eight states which has no estate tax, although Texas residents may still be subject to federal estate tax laws. An estate tax is often referred to as a “death” tax—a tax levied on the estate of the decedent before the money passes to the decedent’s heirs. This estate tax is only levied on estates that reach a specific monetary threshold. Estate taxes are not the same as inheritance taxes, which are taxes taken by the government after the beneficiaries have received the decedent’s money or possessions.

Not only is there no estate tax in Texas, but there is also no inheritance tax. If a loved one from another state leaves you money, that money will fall under the other state’s laws regarding inheritance tax. In the same way, if you have property in multiple states, your heirs may be subject to inheritance taxes on some of the other properties. Finally, the state of Texas has no gift tax, therefore essentially the only thing your heirs will have to worry about will be federal gift tax, which, as of 2019, gave you the right to gift up to $15,000 to an individual without and federal gift taxes being assessed.

While you, your estate, and your heirs will owe no taxes to the state of Texas, there may be estate taxes owed to the federal government, if your estate is large enough. The federal estate tax for 2019 “kicks in” at $11.14 million, or twice that for a married couple. If your estate exceeds this amount, the top federal estate tax rate is 40 percent.

As an example, if your estate is worth $20 million, and you are not married, you would subtract $11.14 million from the $20 million, leaving you with a taxable estate of $8.6 million, placing you in the highest tax bracket of 40 percent, and making the amount to be paid $3.44 million. As you can see, Texas is a very tax-friendly state, meaning your primary worry when considering estate planning will be federal taxes.