Preserving resources and maximizing what people inherit are often top priorities during the estate planning process. Those who have enjoyed financial success during their lives usually want to share that good fortune with their loved ones.
They don’t want outside parties to intercept some of the assets in their estate and diminish what their chosen beneficiaries receive. Personal debts, including credit card balances, medical bills and student loans, can diminish the value of an estate. If older adults rely on Medicaid to cover long-term care costs as they age, the Medicaid estate recovery program could make a claim against their estate.
For people who do not have to worry about debt, medical or otherwise, taxes become a significant concern. Estate taxes can have a major impact on how much property the beneficiaries of an estate inherit. Do testators establishing or reviewing their estate plans in Texas need to worry about estate taxes?
Federal taxes may be a concern
The good news for Texas residents is that the state does not assess an estate tax. There are also no inheritance taxes that beneficiaries must cover. Unfortunately, federal estate taxes could apply to larger estates.
The federal estate tax is a progressive tax assessed based on the total value of the estate. If an individual passes in 2025, the exemption threshold for their resources is $13.99 million. Estates worth that much or more could be subject to federal estate taxes. The tax rate that applies could range from 18% to as much as 40%.
There is typically no way for the person administering an estate to reduce or eliminate those obligations with last-minute adjustments. Advance planning is the only way to successfully minimize estate tax obligations.
How do people address estate taxes?
There are many different strategies that people utilize to diminish estate tax liability. Frequently, they take on co-owners or otherwise change how they hold property. Assets not held directly by an individual do not become part of your estate.
Some people make strategic gifts to their loved ones throughout their golden years. Others may decide to fund trusts. A collection of different strategies is often necessary when trying to address tax liability for a multi-million-dollar estate.
Estate taxes often are an important consideration during asset protection planning and other types of estate planning. Reviewing legacy goals and current documents with a skilled legal team can be a good starting point for those hoping to preserve as much of their property as possible.