If you live in Texas, you may have heard that the Lone Star State doesn’t impose a state estate or inheritance tax - and that’s true. But that doesn’t mean estate taxes are off your radar. The federal estate tax can still apply, especially if your estate exceeds certain thresholds, and knowing how it works can help you plan ahead, protect your heirs, and avoid unpleasant surprises.
This guide is designed to help Texas families get a clear picture of how the federal estate tax works, who it affects, and what strategies can help reduce the potential tax burden.
The federal estate tax is a tax levied on the transfer of a person’s assets after they pass away. It applies only to estates valued above a certain amount, which is known as the federal estate tax exemption.
As of 2024, the exemption is $13.61 million per person. For married couples, this can be doubled to $27.22 million if proper estate planning steps are taken. This means that unless your estate is worth more than that amount, your heirs generally won’t owe federal estate taxes.
However, it’s important to remember two things:
These exemptions are temporary and set to drop significantly in 2026, potentially to around $6 million per person.
Even if you’re below the threshold today, a growing estate could push you into taxable territory in the future.
You can check the most up-to-date federal exemption limits on the IRS website.
No, Texas is one of several states that does not have a state-level estate or inheritance tax. That’s a major benefit for residents, especially when compared to states like Oregon or Massachusetts, where even smaller estates can be taxed at the state level.
But while Texas won’t tax your estate, the federal government still might, which is why proactive estate planning is crucial, even here.
When calculating the size of an estate for tax purposes, it’s not just cash or property that counts. The IRS looks at everything you own or control at the time of your death, which may include:
Real estate (primary residence, vacation homes, rental property)
Investment accounts and savings
Retirement accounts (like IRAs and 401(k)s)
Life insurance payouts (if you owned the policy)
Business interests
Collectibles or high-value personal property
It’s easy to see how the value can add up quickly, especially if you own a business, have valuable real estate holdings, or carry large life insurance policies.
Estate taxes can take a big bite out of your legacy if you don’t plan for them. Without proper planning, your heirs could face a hefty tax bill or be forced to sell assets like family land or a small business to cover the cost.
Estate planning can help avoid this. Strategies might include:
Using the marital deduction to transfer assets tax-free to a spouse
Gifting during your lifetime to reduce the size of your taxable estate
Creating irrevocable trusts to move assets out of your estate
Purchasing life insurance inside a trust to help pay any future estate taxes
The best plan for you depends on your unique situation, and that’s where professional guidance is essential.
Even if your estate doesn’t currently meet the federal threshold, changes are coming. The current exemption levels were put in place under the Tax Cuts and Jobs Act and are set to expire at the end of 2025. Unless Congress takes action, the exemption will be cut in half.
That could mean a much larger percentage of families - especially those with land, retirement savings, and life insurance - could face estate taxes in the coming years.
By taking action now, you can lock in today’s generous limits and build a more tax-efficient estate plan for the future.
While estate planning often involves an attorney or financial planner, a tax attorney plays a unique and valuable role. They’re trained not only in the legal aspects of estate planning but also in the intricate workings of the tax code.
A tax attorney can help:
Evaluate whether your estate might be subject to federal taxes
Design tax-efficient gifting strategies
Structure trusts and other tools to reduce tax exposure
Ensure compliance with IRS rules and documentation requirements
Texas families looking to preserve their wealth and protect their heirs can benefit greatly from consulting with a tax professional early in the planning process.
For a deeper dive into how estate taxes work and how they might affect you, this article from NerdWallet breaks down some common questions and scenarios.
Even though Texas doesn’t impose its own estate tax, the federal rules can still impact your family’s financial future. The good news? With the right plan in place, you can reduce or even eliminate that burden. If you’d like help understanding your estate’s potential tax exposure, or building a smart plan to minimize it, contact Steve Powell today He has the experience to guide you through every step.