The Ultimate Texas Estate Tax Guide [Top 10 Strategies]

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Paul Sundin, CPA

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Texas has recently seen a surge in migration. With this comes questions regarding taxes. For example, does Texas have an estate tax?

In this post, we plan on tackling some of the Texas estate tax issues and questions that we encounter on a daily basis. So let’s dive in. 

Texas estate tax

The good news is that Texas does not have an estate tax. Therefore, there is no estate limit, exemption, or tax rates to be concerned about.

But don’t forget about federal estate taxes. The rates will start around 40%, but there is recent discussions about increasing that rate and also decreasing the exemption.

How does the federal state tax work?

In theory, it is very simple. When a person passes away, you would consider their gross assets and then make deductions for debts and loans. You can reduce the estate even further through administrative and other funeral related costs.

The net amount is an applied to the annual exemption level. If you exceed this amount, you must file an estate tax return and pay any assessed tax.

However, very few estates will pay estate tax. Typically only about 1% of the estates have net assets that exceed the applicable exemption. So this shouldn’t be a problem for most taxpayers.

Financial planning puzzle piece

But in the current political climate, we see increased discussions around estate taxes. It would not be surprising if rates increased in future years. We might also see states impose additional taxes at the estate level.

But as of now there is no estate tax in Texas which is great news for people arriving from other high tax states.

Texas gift tax and inheritance

Texas also does not impose a gift tax or an inheritance tax. So there is no filing requirement when a gift is made. In addition, Texas will not impose inheritance related taxes for beneficiaries of Texas estates. It also does not impose tax for Texas residents that inherit assets that are domiciled in other states. But that doesn’t mean that those assets won’t be taxed in other states.

The estate tax in Texas is a complex process that varies by state. The state has six different laws that affect the distribution of an estate. The amount of the inheritance and the deceased’s relationship to the estate will determine the tax bill.

In most cases, surviving spouses are not responsible for the inheritance tax. However, the estate tax can be expensive, so it’s a good idea to know what you’re getting into before filing an application.

There are different thresholds for state estate taxes. In Texas, the federal estate tax limits apply. In 2018, the thresholds for a single person’s Texas estate tax were estimated to be $5.8 million and $11.2 million for a married couple.

Any estate that exceeds these thresholds is subject to the federal estate-tax of 40%. It is also important to remember that Texas’s threshold is higher than the federal one, so be aware of the limits.

For example, if you die without a will, your spouse can continue paying the property taxes. In the event that your spouse is 65 or older, you may not be able to defer these taxes until your death.

Once you pass away, your estate is responsible for paying these taxes, plus any interest or penalties you may have accrued over time. In some cases, a surviving spouse is allowed to keep the unused exemption, so it is important to know how much you need to spend on taxes and other expenses.

If your loved one died without leaving a will, you may be able to avoid the Texas estate tax entirely. However, it is imperative to know the value of all of your assets before planning your estate. Make sure you know how much your retirement plans are worth.

A 401(k) calculator is an excellent tool to use when calculating the value of your 401(k) plan. Don’t think you’re too young to plan for the future. Whether or not you’re currently financially stable, planning ahead can protect your family in the event of a tragic event.

Despite the high tax rates in Texas, most people don’t need to worry about paying this tax. In fact, Texas is a very friendly state, so there’s no reason for you to worry about it.

The state has a low income tax and is not regulated in a way that can lead to an estate or inheritance. If you’re a resident of Texas, this means that you won’t have to pay the TX estate or inheritance taxes.

While Texas does not have an estate tax, it does have a federal inheritance tax. Inheritance tax is a type of sales-tax. In Texas, the federal government has no income tax. Therefore, a person who dies in Texas will be responsible for paying the estate tax. A death tax return must be filed by the tax day following the deceased’s death. The state sales tax rate in Texas is 625 percent.

The Texas estate tax system is a “pick-up” tax, which means that TX picks up the credit for state death taxes on the federal estate tax return. But in TX, this credit is no longer included on the federal estate-tax return.

This means that the state does not have an inheritance or an additional taxable event. The Texas tax code has a very complicated and confusing structure, so you need to find a good lawyer for help.

When you die, the Texas estate tax is paid by the state. The federal estate-tax is a hefty tax, but the state’s exemption is relatively high. A taxpayer’s estate can have an estate valued under $10 million and not be required to pay it.

A deceased’s tax exemption is indexed to inflation and increases every year, making it an extremely complex system. In the end, it is up to the executor to decide which taxes to pay.

Although Texas doesn’t levy an estate tax, a resident can still be liable for federal estate taxes if they have a large amount of property. In addition to Texas’s inheritance tax, the Texas estate tax is also the only state in the U.S. that doesn’t levy an inheritance or gift-tax. In addition, when an estate’s value exceeds the federal exemption level, the estate must be reported to the federal government.

How to Avoid the Texas Estate Tax

Because Texas does not have an estate tax, you are in great shape. But the federal estate tax could still trip you up. Below are some strategies that you can use lower any estate tax liability. Make sure you review the following:

  • Family Limited Partnerships (FLPs)
  • Charitable Remainder Trusts (CRUT)
  • Minor Trusts 
  • Grantor Retained Income Trusts (GRIT)
  • Gifts Below Annual Exemption
  • Qualified Terminable Interest Property (QTIP)
  • Qualified Personal Residence Trusts (QPRTs) 
  • Grantor Retained Annuity Trusts (GRATs) 
  • Crummey Trusts 
  • Special Valuation of Farms and Businesses
  • Dynasty Trusts
  • Charitable Gift Annuity
  • Grantor Retained Unitrusts (GRUTs)
  • 529 Plans
  • Intentionally Defective Grantor Trust (IDGT)
  • Donor-Advised Funds
  • Irrevocable Life Insurance Trust (ILIT)
  • Direct Medical and Tuition Payments 

People who should consider planning

There are many people who should be especially concerned about estate planning. Most people don’t realize that retirement accounts (including IRAs and 401ks) along with life insurance proceeds must be included in an estate.

As such, anybody who has the following circumstances should consider planning strategies:

  • People with life insurance policies of at least $1 million
  • People who stand to receive a large inheritance
  • Business owners and entrepreneurs
  • CPAs, engineers, IT professionals
  • Consultants with high earning potential
  • Medical and healthcare professionals
  • Retirement accounts in excess of $1 million
  • People with multiple rental properties
  • Partners in passive activities


Texas is a very low tax climate. It has no state income tax, no estate tax, no inheritance tax, and no gift tax.

But it does have rather high property taxes. Texas has historically made a lot of money from levees on oil and gas, which is kept overall taxes on the low side. But certainly the higher property taxes need to be considered for anybody considering a move to the state.

If you think you might have a state tax issues, make sure you talk to a qualified CPA and or estate attorney. There are many planning opportunities that can be implemented before you are faced with a large tax bill.

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