The short answer is no - Texas does not impose a state-level estate or inheritance tax. However, federal estate tax laws still apply, and significant changes are expected at the end of 2025 as the sun sets on the provisions of the Tax Cuts and Jobs Act of 2017.
Texas: An estate tax-free zone
Texas is among 38 states that does not levy an estate tax, commonly referred to as a “death tax”. Additionally, the state eliminated the Texas inheritance tax in 2015. This means that heirs and beneficiaries do not owe state tax on assets they inherit in Texas.
However, estate planning should still be a concern of Texans because federal estate taxes still affect Texan residents. Additionally, Texan estate laws do not shield residents from property taxes, capital gains taxes, and other estate-related financial obligations.
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At the end of 2025, the Tax Cuts and Jobs Act of 2017 estate tax exemption will be reduced by half. Estates valued at $7 million and above (previously $13.99 million) will pay 40% or more in federal estate tax. If you care about securing your private wealth, call Hall Accounting Company today, and let’s discuss how you can shield your estate from the changes.
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What is the federal estate tax?
The federal estate tax is an excise tax that is levied on the transfer of assets after a person dies. It applies to assets (personal property) that are transferred by will, or without a will, in which case it is done according to state laws of intestacy.
Other asset transfers subject to an estate tax are those made through a trust and the payment of life insurance proceeds or financial accounts. In the U.S. estate tax is part of the unified transfer tax system, which includes:
Estate taxes - levied on the estate before distribution.
Gift taxes - applied to certain lifetime transfers of wealth.
Generation-skipping transfer taxes - taxes on wealth transfers that skip a generation.
An asset left to a spouse or recognized charity is not subject to property taxes. These assets are subject to an estate tax exemption and are a huge incentive for high-net worth individuals to use estate planning services to ensure their assets are not reduced due to an estate tax liability.
Current federal estate tax exemption
Under the Tax Cuts and Jobs Act (TCJA) of 2017, the federal estate tax exemption was significantly increased. For 2025, the exemption amount is $13.99 million per individual or $27.98 million for married couples. Only estates exceeding this threshold are subject to the estate tax rate, which is currently 40%.
What is portability when applied to a deceased’s estate?
A surviving spouse can inherit any unused position of the spouse’s exemption through portability. However, for portability to apply, the estate must file a Form 706 federal estate tax return within nine months of the first spouse’s death. While portability helps preserve the exemption for married couples, it does not protect against future appreciation of assets.
What happens in 2026 when the TCJA has expired?
On January 1st, 2026, the record-high tax exclusion afforded by the TCJA will expire, and the exemption is projected to decrease to $7 million per individual (adjusted for inflation). [1] Unless the exemption is extended (which is not currently on the cards), a much bigger portion of estates will be affected and will have to pay estate taxes.
Who is affected by federal estate tax?
Federal inheritance or estate tax is levied on assets of a deceased person before distribution. It applies to every person that is a citizen or resident of the U.S. The demographics hardest hit by the estate tax have been:
High-net-worth individuals: Estates valued above the annual estate tax threshold.
Business owners and farmers: Family-owned businesses and agricultural holdings.
Wealthy retirees and investors: Individuals with substantial investments that are above the estate tax threshold, and/or have multiple properties they will transfer to family members.
If you fall into one of these categories get professional tax and estate planning advice now to help you shield your estate from changes to the TCJA at the end of 2025.
6 ways to reduce estate tax in 2025
As a Texas resident you do not pay Texas estate tax, but as we’ve discussed that does not shield you from federal government tax laws. This year you have a final opportunity to utilize the provisions afforded by the TCJA before it expires at the end of 2025. You should always get the advice of a professional tax expert for estate tax planning, and here we give you a list of ideas to discuss with them.
1. Annual gift tax exclusion
The simplest strategy is to direct gifts of cash, securities, and other investments with a value up to the lifetime exemption. In 2025, individuals can gift up to $19,000 without using the lifetime exemption. Married couples can combine their exclusion to gift $38,000. These gifts do not require IRS reporting.
By using this strategy you can transfer wealth to your heirs while you are still alive and can control where your money goes.
2. Utilize 529 plans for education
The 529 college savings plan is a state-sponsored investment plan that enables you to save money for a beneficiary and pay for education expenses. Contributions to 529 education savings accounts are considered gifts under the federal gift tax laws. Under this provision, you can contribute up to five years of annual exclusion gifts at once.
3. Pay tuition and medical expenses directly
Tuition paid directly to the educational institution is not subject to the federal gift tax. For example, you can make payments directly to a school or university to cover your child or grandchild's tuition. Likewise, medical expenses paid to a provider, including insurance premiums, are seen as tax-free transfers.
4. Utilize an irrevocable trust to transfer your wealth
Sometimes writing the equivalent of a $13 million check to your child or grandchild can have life changing consequences, some of which may be negative. To shield family wealth, consider creating an irrevocable trust, which permits withdrawals on a schedule and/or conditions of your choosing. This arrangement allows you to control when family members receive payments. This is a crucial part of estate planning - deciding the stipulations of the trust.
5. A Spousal Lifetime Access Trust (SLAT)
SLAT allows one spouse to put assets into a trust for the benefit of the other spouse while removing the assets from the taxable estate. The donor spouse gifts cash, life insurance, marketable securities, real estate, or other assets of which they are the sole owner to a SLAT and reports it on their gift tax return.
6. Charitable giving
Under federal law, gifts to recognized charities are not included for estate tax purposes. There is no limit to the amount you can give to organizations, and so this makes it an ideal choice for those who want to reduce their wealth and at the same time use the wealth to benefit social causes.
Why You Should Consider Tax and Estate Planning Services
If you’ve been working hard to grow the wealth of your family, the last thing you want is to see it go to the federal government in taxes. This doesn’t need to be the case if you actively start planning how your wealth will be distributed, while you are alive.
Estate tax is just one aspect of wealth management, and therefore encompasses more than most people realize. A multi-prong approach is necessary if you want to secure your fortune.
This is where a financial advisor or wealth management advisor can make a real difference. They will look at your finances holistically and discuss your goals for where you want your money to go now, and when you pass on. Having control over this process brings a great deal of relief to people, especially those with multi-million dollar assets they want to transfer to family members to ensure they thrive for generations to come.
The strategies discussed here are just scratching the surface of what can be done to protect your wealth from taxes, and we encourage high-net worth individuals especially to be wise and proactive about wealth management. This is also important if you have a business that will be affected during transfer of assets. You need to protect the operation of the business while your estate is being dealt with.
Don’t let the opportunity pass to put effective strategies in place and leave your family protected, and better off than they are now.
Call Hall Accounting Company if you want to discuss these and many other strategies for wealth management, tax reduction, and business financial health. Our team consists of a number of financial experts who will be happy to discuss your needs with you.
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