Introduction
Estate and inheritance taxes can significantly impact wealth transfers and financial planning. Many states impose these taxes, but Texas offers a tax-friendly environment for estates and beneficiaries.
This guide explains whether Texas has estate or inheritance taxes, how federal estate taxes apply, and strategies to minimize tax liabilities.
Does Texas Have an Estate Tax?
No, Texas does not impose an estate tax. This means that when a person passes away, their estate is not subject to state-level estate taxes, regardless of the estate’s value.
Does Texas Have an Inheritance Tax?
No, Texas does not have an inheritance tax. Beneficiaries receiving assets from an estate in Texas do not owe state taxes on their inheritance.
How Federal Estate Taxes Apply to Texas Residents
Although Texas has no state-level estate tax, estates may still owe federal estate taxes if their value exceeds the federal exemption limit.
- Federal Estate Tax Exemption (2025)
- Exemption Amount: $13.61 million per individual
- Tax Rate: 18% – 40% (for estates above the exemption)
- Married Couples: Can combine exemptions for $27.22 million
Example Calculation
- Estate Value: $15 million
- Federal Exemption: $13.61 million
- Taxable Amount: $1.39 million
- Federal Estate Tax (Approx.): $500,000
What If You Inherit Property from Another State?
If you inherit property from a state that imposes an inheritance tax, you may be required to pay that state’s tax.
States That Have Inheritance Taxes (2025)
- Iowa
- Kentucky
- Maryland
- Nebraska
- New Jersey
- Pennsylvania
How to Reduce Estate Tax Liability
1. Use the Marital Deduction
- Unlimited tax-free transfers between spouses.
- Defers estate tax until the surviving spouse passes away.
2. Set Up a Trust
- Revocable Living Trust: Avoids probate and simplifies wealth transfers.
- Irrevocable Trust: Removes assets from the taxable estate.
3 Gift Assets During Your Lifetime
- Annual Gift Tax Exclusion: $18,000 per recipient (2025).
- Lifetime Gift Tax Exemption: $13.61 million (same as the estate tax exemption).
4 Donate to Charity
- Charitable donations reduce the taxable estate and qualify for deductions.
Texas Probate Laws & Estate Planning Considerations
Is Probate Required in Texas?
Yes, if the deceased owned assets solely in their name, the estate must go through probate.
Ways to Avoid Probate in Texas
- Living trusts (assets transfer outside probate).
- Joint ownership with right of survivorship.
- Beneficiary designations on bank accounts and life insurance.
Do Business Owners in Texas Need Estate Tax Planning?
Yes, business owners should plan for business succession and tax-efficient transfers.
Key Strategies for Business Owners
- Buy-Sell Agreements: Ensures smooth ownership transition.
- Family Limited Partnerships (FLPs): Protects business assets and reduces estate tax exposure.
Should You Work with a CPA for Estate Tax Planning?
A CPA can help:
- Minimize federal estate taxes through strategic planning.
- Set up trusts and gifting strategies to preserve wealth.
- Ensure compliance with tax laws for multi-state inheritances.
Conclusion
Texas is an estate and inheritance tax-free state, making it an attractive location for wealth transfer planning. However, federal estate taxes still apply to large estates. Proper trust planning, gifting, and charitable donations can help reduce tax burdens and protect wealth.
For expert estate tax planning, schedule a meeting with our CPA Anshul Goyal by clicking at https://calendly.com/anshulcpa/ now.