Adults who are putting together or updating an estate plan have a lot to consider. They need to think about their family relationships and the needs of their dependents. They need to consider their financial obligations and also the assets that they need to distribute among their beneficiaries.
In some cases, they may want to establish plans that include terms for their protection as they age. Other times, they need to think about the long-term financial implications of the intergenerational transfer of wealth. Certain risks can significantly diminish the value of a Texas estate. For example, estate taxes levied based on the total value of someone’s property after they die can drastically alter how much their loved ones inherit.
When do people need to consider planning to avoid or reduce estate taxes?
When they have millions of dollars in property
Texas technically does not collect an estate tax. However, every resident of Texas is still liable for federal taxes, including federal estate taxes. The threshold for federal estate taxes is millions of dollars. In 2024, individuals who die with more than $13.61 million in their names could be responsible for substantial estate taxes.
The personal representative of a large estate may need to set aside between 18 and 40% of the total value of the estate to cover the cost of estate taxes. The only way to eliminate that tax burden is to ahead of time to diminish the assets held directly in the name of the testator.
How do people reduce estate taxes?
There are multiple strategies that can help limit estate tax obligations after someone dies. Many people establish trusts as a way of limiting the value of an estate. Trusts can hold high-value assets including real estate and businesses so that they don’t pass directly through probate court.
Other times, people may transfer assets to loved ones while they are still alive. They might make annual gifts worth thousands of dollars to avoid both estate taxes and gift taxes. Adding transfer-on-death designations to certain accounts or making a spouse a co-owner of high-value assets can also be tactics that help mitigate estate tax liability.
There are various solutions depending on the type of resources someone has and the beneficiaries who may inherit from their estate. Addressing estate taxes during estate planning can help someone maximize their final legacy. An attempt to identify factors that can reduce the value of an estate can make a major difference for those with millions of dollars in resources that could be vulnerable after they die.
