Estate Planning for TX Founders: No State Estate Tax, But…

Introduction

Texas founders and entrepreneurs, building substantial wealth through innovative businesses, often prioritize estate planning to preserve legacies and minimize transfer taxes. While Texas imposes no state estate tax, inexperienced advisors may overlook federal estate tax implications or fail to integrate strategies like trusts and gifting, leading to unnecessary federal liabilities or missed opportunities.

Are you structuring your estate plan to fully capitalize on Texas’s tax advantages while addressing federal rules in 2025? At Kewal Krishan & Co, our expert tax advisors help Texas clients save an average of $50,000 annually, potentially totaling $775,000 over a decade through comprehensive estate and tax planning. This blog explores estate planning for Texas founders in 2025, highlighting the absence of state estate tax under Texas Tax Code § 211 but emphasizing federal considerations under Internal Revenue Code (IRC), with detailed examples and compliance steps.

With the One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, increasing the federal estate tax exemption to $13.99 million ($15 million from 2026 under IRC § 2010), strategic planning is essential to navigate portability, basis step-up, and asset protection. Begin safeguarding your legacy today with insights from Our Estate Planning Services.

Understanding Estate Planning for Texas Founders

Texas has no state estate or inheritance tax (Texas Tax Code § 211.001), making it attractive for founders, but federal estate tax applies to estates over the exemption amount under IRC § 2001, taxed at 40% on excess. OBBBA’s exemption increase reduces exposure for many, but planning remains crucial for step-up in basis (IRC § 1014), spousal portability (IRC § 2010(c)), and asset protection via trusts.

Key Federal Considerations

• Exemption and Portability: $13.99 million per person in 2025; surviving spouse can port deceased’s unused exemption via Form 706 timely filed (IRC § 2010).
• Step-Up in Basis: Assets included in estate receive fair market value basis at death, eliminating capital gains tax on appreciation (IRC § 1014).
• Trusts: Revocable living trusts avoid probate but are estate-included; irrevocable trusts (e.g., ILITs) exclude assets if properly funded (IRC § 2035).
• Gifting: Annual exclusion $18,000 per donee in 2025 (IRC § 2503); lifetime gifting reduces estate but uses exemption.
• Texas Advantages: No state tax amplifies federal savings; strong trust laws (Texas Property Code § 112) support DAPTs for protection.

Report estates on Form 706 if over exemption; Texas requires no state return but property tax on inherited real estate. For details, see IRS Publication 559 and Texas Comptroller’s Estate Tax Guide.

Detailed Example: Estate Planning Savings for Texas Founders

Consider a Texas founder, Mr. Garcia, with $20 million estate in 2025, including $10 million business interest, married with two children. Without planning, estate tax on $6.01 million excess ($20 million – $13.99 million) = $2.404 million at 40%.

• Portability: Files Form 706 for deceased spouse’s unused $13.99 million, increasing exemption to $27.98 million—no tax.
• Step-Up: Business interest steps up to FMV, heirs sell tax-free on $5 million appreciation.
• Irrevocable Trust: Transfers $5 million to ILIT, excluding from estate (saving $2 million tax if not ported), income taxed to trust (Form 1041) at 37% over $15,650.
• Gifting: Gifts $36,000 annually to each child/spouse ($144,000 total), reducing estate without using exemption.
• Texas Impact: No state tax; real property transfers trigger property tax reassessment, but homestead cap limits increases.

Net: Zero federal tax with portability/trust; $2.404 million saved. If unportable, trust/gifting reduces taxable estate to $10 million, under exemption.

Alternative Scenario

For $12 million estate: Basic will incurs no tax (under $13.99 million), but no step-up planning; heirs pay gains on $4 million appreciation (~$952,000 at 20% + 3.8%). Trust-owned assets avoid this.

Step-by-Step Guide for Taxpayer Compliance

To implement estate planning as a Texas founder in 2025, follow these steps:

1. Assess Assets: Inventory estate, valuing business interests via appraisal (IRC § 2031).
2. Choose Tools: Draft wills/trusts with attorney; use revocable for probate avoidance, irrevocable for exclusion (Texas Property Code § 112).
3. Utilize Exemption: Gift annually ($18,000/donee) or lifetime to reduce estate (IRC § 2503).
4. Port Deceased Exemption: File Form 706 within nine months of death, even if under exemption (IRC § 2010(c)).
5. Step-Up Planning: Hold appreciating assets until death for basis adjustment (IRC § 1014).
6. File Returns: If estate over exemption, file Form 706 by nine months post-death, extendable (IRC § 6075); no Texas estate return.
7. Pay Taxes: Remit federal estate tax with Form 706; property taxes on inherited real estate due January 31, 2026.
8. Retain Records: Keep appraisals, trust documents, and filings for three years (IRC § 6001).

For business succession, explore Our Business Tax Services.

Common Pitfalls to Avoid

• Missing Portability: Fail to file Form 706, losing spouse’s exemption (IRC § 2010(c)).
• Improper Trust Funding: Assets not transferred, remaining estate-included (IRC § 2036).
• Gifting Errors: Exceed annual exclusion without Form 709, using lifetime exemption prematurely (IRC § 2505).
• Valuation Disputes: Undervalued assets trigger IRS audits; use qualified appraisals (IRC § 2031).

Why Work with a Tax Expert?

Estate planning for Texas founders requires integrating no-state-estate-tax advantages with federal IRC rules and OBBBA exemptions, where pitfalls like missed portability can cost millions. Generic advisors may undervalue business appraisals or trust strategies, leading to higher taxes. Kewal Krishan & Co specializes in Texas-specific planning, ensuring compliance and optimal wealth transfer. Our expertise mitigates risks, as shown in Our Tax Litigation Services.

Conclusion

Texas founders benefit from no state estate tax in 2025, but federal IRC rules and OBBBA’s $13.99 million exemption demand proactive planning for portability, step-up, and trusts to minimize liabilities. With Texas’s supportive laws, strategic gifting and structures preserve wealth—consult experts now to craft a plan that secures your legacy.

Call to Action

Schedule a consultation with Anshul Goyal, CPA EA FCA, a licensed U.S. CPA and Enrolled Agent, admitted to practice before the IRS, specializing in tax litigation and cross-border tax for U.S. businesses and Indians in the U.S. Contact us at Kewal Krishan & Co to develop your estate plan.

About Our CPA

Anshul Goyal, CPA EA FCA, is a licensed U.S. CPA and Enrolled Agent, representing clients in IRS tax litigation and assisting with cross-border tax compliance for U.S. businesses and Indians in the U.S. His expertise ensures tailored strategies that maximize savings and ensure compliance.

Disclaimer

This blog provides general information for educational purposes only and does not constitute tax, legal, or financial advice. Tax laws change frequently, and individual circumstances vary. Consult a qualified tax professional before making decisions. The author and firm disclaim liability for actions taken based on this content.

FAQs

1. Does Texas have an estate tax?

No, per Texas Tax Code § 211.001; only federal applies.

2. What’s the 2025 federal exemption?

$13.99 million per person, portable to spouse (IRC § 2010).

3. How does step-up work?

Assets get FMV basis at death, eliminating gains tax (IRC § 1014).

4. Can I gift without tax?

$18,000 annual exclusion per donee (IRC § 2503).

5. What form for portability?

Form 706, filed within nine months of death (IRC § 6075).