The death tax, also known as the estate tax, can influence how much of your wealth is ultimately passed on to heirs. This tax applies to an estate’s total value, potentially reducing what beneficiaries receive. For Texas residents considering the future of their assets, thoughtful planning can help address these tax implications and provide peace of mind about their legacy.

While tax regulations vary across states, federal laws affect larger estates, which may impact the inheritance left to loved ones. For those with substantial holdings, understanding federal guidelines is important for making decisions that align with long-term family plans. This guide explores the essentials of Texas estate planning, focusing on key tax considerations for significant estates. Taking the time to understand these factors now can help you preserve more of your estate’s value and create a smoother wealth transfer to the next generation.

What Is an Estate Tax?

Estate tax is applied to the total worth of an individual’s assets at the time of their passing, and it’s assessed before those assets are passed on to heirs or beneficiaries. The value of an estate typically includes various types of property and holdings, each contributing to the overall taxable amount. Let’s look at some of the primary assets commonly factored into an estate’s taxable value:

Real Estate: Real property, including family homes, vacation properties, land, and rental properties, is typically included in the taxable estate. These properties are valued at fair market price, adding significant weight to the estate’s total worth.

Investments: A large portion of an estate’s value often comes from financial assets—such as stocks, bonds, and mutual funds. These holdings are appraised along with the estate and play a central role in determining the amount owed in estate taxes.

Retirement Accounts: Funds held in retirement accounts like IRAs, 401(k)s, and other pension plans also contribute to the estate’s value. Although certain types of accounts may have unique tax treatments, they are generally counted when determining the estate’s worth for tax purposes.

Personal Valuables: High-value items, such as fine jewelry, artwork, rare collectibles, and antiques, are also included in the estate’s taxable value. These possessions can add significantly to an estate’s value, especially if they include rare or unique items that may appreciate in worth.

In short, the estate tax applies broadly across the value of real property, financial investments, retirement savings, and personal possessions. Each of these categories can impact the total amount subject to estate tax, making it important for families and estate planners to consider how various assets contribute to the estate’s taxable amount.

What’s the Difference Between an Estate Tax and an Inheritance Tax?

Although estate tax and inheritance tax are sometimes confused, they are different types of taxes. Here’s a breakdown of each:

Estate Tax: The estate tax is calculated on the total worth of a person’s assets after they pass away, and it’s the responsibility of the estate to pay this tax before any inheritance is transferred to beneficiaries. In Texas, only estates exceeding the federal exemption threshold are liable for federal estate taxes, as there is no additional estate tax at the state level.

Inheritance Tax: In contrast, inheritance tax is based on the value of assets each heir receives and is paid by the beneficiaries themselves. Texas residents benefit from the state’s lack of inheritance tax, so they don’t face extra state tax on inherited property. A Texas resident receiving an inheritance from someone in a state that enforces an inheritance tax might still be required to comply with that state’s tax laws and could face an inheritance tax on the assets received.

Does Texas Have an Estate Tax?

Texas does not have a state estate tax, which benefits Texas residents aiming to transfer their wealth without additional state-imposed costs. This absence means that estates in Texas avoid a layer of taxation compared to those in states that have their own estate taxes.

U.S. locations that impose their own estate tax include:1

• Hawaii
• Washington
• Oregon
• Minnesota
• Illinois
• Vermont
• Massachusetts
• Rhode Island
• Connecticut
• New York
• Maine
• Maryland
• District of Columbia

Please Note: Even without a Texas estate tax, federal estate tax laws apply to large estates. If the estate’s total value is above the federal exemption level, taxes are owed to the federal government, which can impact high-value estates across Texas. 

Does Texas Have an Inheritance Tax?

There is also no Texas inheritance tax. This means beneficiaries in the Lone Star State can inherit assets without facing additional state-level tax obligations, allowing for a smoother transfer of wealth within families.

U.S. locations that impose their own inheritance tax include:2

• Kentucky
• Maryland
• Nebraska
• New Jersey
• Pennsylvania

If you inherit assets from someone who lived in one of these states, you may be responsible for paying inheritance tax to that state, even if you reside in Texas. The amount of inheritance tax owed typically depends on both the value of the assets inherited and the heir’s relationship to the person who passed away. Those with a closer familial connection often qualify for reduced tax rates, while more distant relations may face higher rates.

Please Note: Iowa had a state-level inheritance tax. However, the state decided to repeal it in its entirety as of January 1, 2025.3

Federal Estate Tax Overview for Texas Residents

In Texas, only federal laws govern estate taxes, as the state itself does not impose any. Under current federal guidelines, estates are taxed only if their value surpasses a specific exemption amount at the time of the owner’s passing. Estates below this level avoid federal taxes, while those above it will incur taxes.

As of 2025, individuals can pass on up to $13.99 million without triggering federal estate taxes. Estates valued above this threshold, however, will be subject to federal taxation. For married couples, this doubles to allow up to $27.98 million to be transferred without federal taxes, offering a valuable opportunity for large estates to minimize tax costs on transferred wealth.4

Because the federal exemption limit may change over time, staying informed can benefit those with estates near the threshold, allowing for better preparation to reduce potential tax impacts and preserve wealth for heirs.

Please Note: The Tax Cuts and Jobs Act (TCJA), which temporarily raised the federal exemption, will sunset at the end of 2025. In 2026, this limit is expected to revert to around $7 million per person, adjusted for inflation, nearly halving the current exemption. For high-value estates, this change could significantly increase tax costs, making advance planning especially important for those who wish to manage tax liabilities effectively.5

Calculations for Estate Tax

The federal estate tax relies on an assessment of each asset’s fair market value as of the date of the individual’s death. This approach estimates the price each asset—ranging from real estate and investments to personal possessions—would fetch in a typical sale, forming the basis for the tax calculation. Under federal law, estates are only taxed on values that exceed the exemption amount, which, for 2025, is set at $13.99 million per individual. 

Amounts under this limit pass to heirs without federal tax. For estates valued above this exemption amount, a series of progressive tax rates applies, with rates increasing as the taxable amount grows. 

Here’s a breakdown of the rates applied to amounts exceeding the exemption:6

• 18% on taxable amounts from $0 to $10,000
• 20% on taxable amounts from $10,001 to $20,000
• 22% on taxable amounts from $20,001 to $40,000
• 24% on taxable amounts from $40,001 to $60,000
• 26% on taxable amounts from $60,001 to $80,000
• 28% on taxable amounts from $80,001 to $100,000
• 30% on taxable amounts from $100,001 to $150,000
• 32% on taxable amounts from $150,001 to $250,000
• 34% on taxable amounts from $250,001 to $500,000
• 37% on taxable amounts from $500,001 to $750,000
• 39% on taxable amounts from $750,001 to $1 million
• 40% on taxable amounts over $1 million

These graduated tax rates affect only the amount above the exemption. The total tax that an estate must pay before distribution reduces what heirs receive, making careful planning helpful for larger estates aiming to protect wealth for future generations.

Strategies to Reduce Estate Tax Liability

Although Texas doesn’t have an estate tax, federal estate taxes can still affect estates above a certain threshold. Strategic planning is important for those who want to preserve more of their wealth for heirs. Below are some approaches that may help reduce your tax burden:

Gifting Assets Using the Annual Exclusion: One approach to reducing your estate’s taxable value is by giving away assets while you’re still living. The IRS allows a specific amount that you can give each person each year without triggering taxes. For Texas residents with large estates, this strategy allows for gradual wealth transfer, potentially decreasing future estate tax liabilities.

Applying the Lifetime Gift Exemption: In addition to the annual gift exclusion, there’s a lifetime exemption for larger, tax-free asset transfers. Strategically applying this exemption over the years allows you to gradually decrease the portion of your estate subject to taxation. For those with estates above the federal limit, this option can be particularly valuable. Seeking guidance from estate planning attorneys can ensure that you’re using this exemption effectively.

Establishing Trusts: Trusts offer a flexible method to manage estate taxes and protect assets. For instance, irrevocable trusts let you move assets out of your estate, lowering its taxable value. With the help of knowledgeable estate planning attorneys, you can identify trust options tailored to meet your family’s needs, offering both tax benefits and added security.

Charitable Contributions: Donating to charities can reduce the taxable value of an estate while allowing you to support causes you care about. Donor-advised funds have become popular, enabling you to contribute funds now and direct donations over time. Options like charitable remainder trusts also let you designate part of your estate to charity, with the remainder benefiting heirs. This approach can significantly decrease the tax burden on larger estates.

Direct Educational Payments: Paying tuition directly to educational institutions for family members provides a tax-efficient way to share your wealth. These payments aren’t counted toward your annual gift exclusion, meaning you can support educational costs without increasing the taxable portion of your estate.

Direct Medical Payments: Similar to educational contributions, paying medical bills directly to providers for loved ones allows you to offer financial help without adding to your estate’s value for tax purposes. This strategy allows you to cover important needs while keeping your estate within the exemption limits.

Family Limited Partnerships (FLPs): FLPs offer a way to transfer business interests or real estate to family members over time. Through gradual ownership transfer, FLPs allow you to benefit from valuation discounts and retain control over assets, making it an effective tool to reduce the tax impact on family wealth.

Life Insurance: Life insurance policies offer tax-free benefits to heirs, providing them with liquid assets to pay estate costs or settle debts. Including life insurance in your estate planning strategy helps protect other assets, ensuring they don’t need to be sold to cover expenses—a valuable advantage for Texas residents with large estates.

Combining Strategies for Wealth Preservation: For many Texas residents, a tailored mix of approaches—such as trusts, life insurance, and gifting—creates an adaptable plan to manage assets and limit tax exposure. By applying these methods together, you can help retain wealth for future generations and avoid the high costs of federal estate taxation.

Texas Estate Planning Professionals

Creating a well-rounded estate plan involves multiple areas of expertise, and working with experienced professionals can make all the difference. For Texas residents wanting to manage estate taxes and pass along assets smoothly, collaborating with the right experts is important. Professionals who specialize in estate planning can help clarify complex tax rules, structure asset protection plans, and make sure that your intentions are clearly expressed. Here are key experts who support Texans in developing sound estate plans:

Tax Professionals: Tax professionals are instrumental in managing the tax aspects of an estate, from preparing and filing tax returns to advising on ways to reduce future tax obligations. With an eye on current tax laws and exemption changes, they provide guidance on strategies like deductions and exemptions that can make a substantial difference in an estate’s tax liability. For large estates, tax experts play a vital role in minimizing financial obligations and streamlining compliance.

Estate Planning Attorneys: Attorneys who focus on estate planning bring legal insight that is important for crafting wills, trusts, and other structures to protect assets. These strategies provide ways to minimize tax burdens and streamline the process of passing assets on to heirs. For Texans with substantial real estate or business holdings, these attorneys can tailor plans that align with federal requirements, helping you structure your estate to protect its value and legacy.

Financial Advisors: Financial advisors add a strategic layer to estate planning by aligning investments with your long-term objectives. They work to balance growth with tax-efficient strategies, helping you build a portfolio that protects wealth for future generations. By coordinating with other professionals, such as attorneys and tax specialists, they create an integrated approach to estate management that helps Texans lower the tax burden and preserve wealth for loved ones.

Let Us Help You with Texas Estate Planning

Carefully planned estates can provide long-term financial security for your family, offering unique benefits to Texas residents. Texas may lack a state-level estate tax, but substantial estates can still incur federal taxes. This possibility underscores the importance of proactive planning to address potential tax impacts on sizable estates. Our firm is dedicated to helping clients structure estate plans that protect assets, reduce potential taxes, and honor their personal values.

We offer a full range of estate planning services, from establishing trusts to developing gifting strategies, all customized to meet your specific needs. Whether your estate consists of real estate, business holdings, or investments, our team works closely with you to create a seamless plan. This tailored approach aims to simplify asset transfers and minimize the overall tax impact on your estate.

For clients already working with tax experts or legal advisors, we’re able to collaborate with your team to bring your complete estate planning vision to life. If additional expertise is needed, we can also recommend experienced professionals from our vetted network to support your goals. We strive to make your planning experience smooth and coordinated, providing a clear and effective foundation for passing down wealth with a reduced tax burden.

Our approach brings together financial insights and legal expertise to create a balanced and effective plan that suits both immediate and long-term family needs. Each part of the plan is designed to work together, protecting your estate from any potential inheritance tax return issues and maximizing the assets that reach your loved ones.

To explore your estate planning options with us, we invite you to schedule a complimentary consultation. We’re here to help you build a solid estate plan that honors your wishes, supports your family’s future, and provides peace of mind through careful preparation. Let’s work together to create a lasting legacy tailored to your goals and values.

Sources:

1. https://www.nolo.com/legal-encyclopedia/state-estate-taxes.html
2. https://taxfoundation.org/data/all/state/state-estate-tax-inheritance-tax-2023/
3. https://www.nolo.com/legal-encyclopedia/iowa-inheritance-tax.html
4. https://www.morganlewis.com/pubs/2024/10/irs-announces-increased-gift-and-estate-tax-exemption-amounts-for-2025#:~:text=In%20addition%2C%20the%20estate%20and,federal%20estate%20or%20gift%20tax.
5. https://www.schwab.com/learn/story/countdown-gift-and-estate-tax-exemptions
6. https://www.kiplinger.com/taxes/whats-the-new-estate-tax-exemption