Even among those who have an estate plan in place, many are unaware of the potential taxes their heirs will need to pay. However, depending on the estate’s value, heirs may need to pay a significant amount of estate tax after the owner of the estate passes away. In short, an estate tax is a tax on property that is transferred from the deceased to their heirs. There is no Texas estate tax. However, there is still a federal estate tax to consider. Thus, it is important to work with a qualified Houston estate tax attorney to reduce or eliminate estate taxes. The questions below are those most commonly asked about preparing for an estate tax and the intricacies of the tax itself.
How Does an Estate Tax Work?
A federal estate tax is based on the fair market value of the estate’s “includible property.” Includible property may consist of cash, real estate, trusts, business interests, and other assets. Some assets may be deducted from the taxable estate, such as mortgages and other debts, administrative estate expenses, and qualified charities. Additionally, surviving spouses are normally exempt from these taxes. It is when the surviving spouse dies that any other beneficiaries may be forced to pay estate tax.
Will I Have to Pay an Estate Tax?
The federal estate tax only applies to individuals who receive the inheritance from estates above a certain exclusion limit. Currently, only estates worth more than $11.58 million are required to pay a tax. It is important to note that this value changes depending on who is in office and any related bills passed by Congress. In 2017, the exemption limit was $5.49 million but more than doubled after the Tax Cuts and Jobs Act. This means that the exemption limit may be down to as low as $3 million within a few years. Thankfully, estate planning attorneys stay up to date on this information and can help individuals who are concerned that they may need to plan for taxes.
How Do I Structure My Estate Plan to Avoid Tax Liability?
Because the exemption limit often changes, estate plans should be flexible enough to adapt when these changes occur. One such alteration is to provide a group of beneficiaries the discretion to determine distributions. This can be accomplished by creating a trust that gives the trustee the ability to structure distributions to reduce taxes.
Because these alterations to an estate plan can often be confusing, and individuals may be unaware if their estate is about the exemption limits, people should contact an attorney who can advise them and make any necessary changes to their estate plan.
Contact a Houston Estate Planning Attorney
If you or a loved one is worried about the implications a tax will have on your estate plan, contact the attorneys at McCulloch & Miller, PLLC. We understand that every estate plan is unique and will ensure any potential tax liability is handled so you do not need to stress about the future. Beyond Houston estate planning matters, our attorneys have decades of experience handling trusts and elder law issues and will work with you to handle any related issues that may arise. To schedule a consultation, contact us today at 713-333-8900.