Estate Tax

How to Make Texas Your Permanent “Domicile” for Estate Planning Purposes

Published on: August 19, 2021 | By McCulloch & Miller, PLLC

Unlike many other states which impose an estate tax at the time of a person’s death, Texas does not have such a tax. Therefore, when people move to Texas from another state many hope to eliminate the state-level inheritance tax from the prior state. To do so, Texans must ensure they are domiciled in Texas. Below are common questions and answers to what a domicile is, along with how to make sure a person is domiciled in Texas.

What Is Domicile?

A domicile is a place where a person has the intent of making their permanent home. A person’s domicile is very similar to their residence; however, while a person can have multiple residences, they can only have one domicile. For example, if a person spends part of the year in Texas and another part in New York, they may have residency in both places—but only one can be their domicile.

How Can Someone Show Where They are Domiciled?

Because a person can only be domiciled in one state, there are actions they can take to show they are domiciled in Texas. For instance, they can file a declaration of domicile form which supports their claim of being domiciled in Texas. Besides filling out this form, the individual must provide two acceptable documents to support their claim of domicile. These documents can include a current deed, mortgage or rental lease agreement in Texas, a utility bill with a Texas address, a Texas high school or college transcript, a pay stub from a Texas company, or a W-2 from an employer—amongst other acceptable documents.

Individuals can take other actions beyond a declaration to support their claim for domicile in Texas. This includes registering to vote in Texas, filing personal tax returns from their Texas address, redrafting wills to state the person is a resident of Texas and obtaining a Texas driver’s license.

Will the Senate Estate Tax Bill Impact My Estate Plan?

Published on: April 8, 2021 | By McCulloch & Miller, PLLC

With the recent election and inauguration of the 117th United States Congress, new bills are being introduced that impact all aspects of a person’s life. According to a recent news source, one such bill is Senator Bernie Sanders’ proposed estate and gift tax reform legislation. For individuals with an estate plan in place, the introduction of new legislation gives cause for concern that it may impact their estate plan. The bill will reduce the estate tax exemption to $3,500,000 and increase the estate tax rate from a flat rate to a progressive one. Because the nuances of such a law can be confusing, below are some common questions and answers about the new estate tax bill.

What Does the Bill Propose?

The bill seeks to reduce the estate tax exemption from $11,700,00 to $3,500,000. This means if an estate is valued at over $11,700,000 currently, the heirs of the estate will need to pay a tax. If the proposal is enacted, the heirs of an estate valued at over $3,500,00 will have to pay the tax. Additionally, if the bill passes, anyone who received more than $1,000,000 in gifts from a loved one as a part of their estate plan will have to pay a tax too. The proposed exemption limits are per person; therefore, for married couples, the total exemption limit would be $7,000,000. After 2022, the exemption will continue to rise with inflation.

How the Biden Presidency May Change Texan’s Estate Taxes

Published on: November 10, 2020 | By McCulloch & Miller, PLLC

With the recent election of Past Vice-President, Joe Biden, individuals are curious about how policies will differ after President-Elect Biden’s inauguration. As Biden has mentioned raising estate taxes and changing the taxation of capital assets upon death, many wonder if they should change their Houston estate plan now. While it is unclear what changes – if any – President-Elect Biden will make to estate tax exemptions and taxes, the issue is worth looking into for many families. Below are some of the most common questions individuals have about estate tax exemptions and what they should do.

What is an Estate Tax, and What Is the Current Estate Tax Exemption?

The federal estate tax applies to individuals who receive an inheritance from estates above a certain exclusion limit. In 2020, the estate tax exemption is $11.58 million per person and $23.16 million per married couple. This means if an individual receives less than $11.58 from an estate – or $23.16 if they are part of a married couple – they are not required to pay an estate tax. Currently, this exemption – which was doubled by the 2017 Tax Cuts and Jobs Act – is set to return to $5 million at the end of 2025, in what is called a sunset provision. It is important to note that surviving spouses are normally exempt from estate taxes.

Do You Have to Pay Estate Tax if You Have a Houston Estate Plan?

Published on: October 6, 2020 | By McCulloch & Miller, PLLC

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.

Take Advantage of a Rare Opportunity for Savings in Your Estate Plan

Published on: June 15, 2020 | By McCulloch & Miller, PLLC

Preferred Partnership Freeze

It is no secret that a well-put-together Houston estate plan can save younger generations an enormous amount of money. However, few are aware of the rare opportunity for estate tax savings caused by the economic conditions surrounding COVID-19. By taking advantage of a Preferred Partnership Freeze (PPF), high net worth individuals can avoid costly estate taxes and continue to take full economic advantage of their assets. Individuals will want to act quickly to seize this opportunity, as this is hopefully a once-in-a-generation opportunity that may not be around for long.

The recent economic shutdown due to the COVID-19 pandemic has decreased the value of many assets, including closely held businesses, investment portfolios, and real estate properties. A Preferred Partnership Freeze allows individuals to freeze the current valuation of such assets, and recognize certain benefits down the road as a result. For assets expected to appreciate, future interests can be placed into a trust avoiding estate taxes on the increase in value. For depreciable assets such as rental real estate, individuals can take advantage of estate tax deferral as well as a tax-free step-up in basis, and increased depreciation and amortization.

Some BIG Estate Planning Actions for 2020

Published on: February 7, 2020 | By McCulloch & Miller, PLLC

This time of the year is a great time to revisit your estate plan, so you can ensure your legacy is protected for years to come.”

Many of us set New Year’s resolutions to improve our quality of life. While it’s often a goal to exercise more or eat more healthily, you can also resolve to improve your financial well-being. It’s a great time to review your estate plan to make sure your legacy is protected.

The Tennessean’s recent article entitled “Five estate-planning steps to take in the new year” gives us some common updates for your estate planning.

Is a Death Tax the Same as an Inheritance Tax?

Published on: June 14, 2019 | By McCulloch & Miller, PLLC

Estate tax, death tax, income tax and inheritance tax: what do they mean for your estate and your heirs? You’ll want to be sure to know the difference between them, as you create your estate plan.

Most people don’t have to worry about the federal estate tax, which is often referred to as the death tax. Unless your estate is valued at more than $11.4 million ($22.8 for couples), you won’t be paying this tax. However, says Forbes in a recent article, “Eight Things You Need To Know About The Death Tax Before You Die,” that doesn’t mean your estate and your heirs won’t have to pay income taxes or inheritance taxes.

Assets in your name only and everything else you had control over will be added into your gross estate. For example, all stocks, bonds, bank accounts and life insurance death benefits are included, as well as any real estate, business interests, jewelry, household furnishings and artwork.

Should You Make Lifetime Gifts While Living?

Published on: May 22, 2019 | By McCulloch & Miller, PLLC

Some people give generously all year long, supporting local nonprofits and taking care of their family members. If that’s you, perhaps it’s time to consider taking a more strategic approach to lifetime giving.

Not everyone gives because they are looking to minimize their taxes. If you’ve reached the age and stage where you have accumulated more than enough wealth to retire on, you may enjoy being generous and seeing the impact your gifts can have on the lives of those you love, or those who are less fortunate.

WMUR’s recent article, “Money Matters: Lifetime non-charitable giving,” explains that lifetime giving means you dictate who gets your property. Remember, if you die without a will, the intestacy laws of the state will dictate who gets what. With a will, you can decide how you want your property distributed after your death. However, it’s true that even with a will, you won’t really know how the property is distributed, because a beneficiary could disclaim an inheritance. With lifetime giving, you have more control over how your assets are distributed.

What Singles Need to Know About the Tax Cuts and Jobs Act

Published on: January 3, 2019 | By McCulloch & Miller, PLLC

Single with a net worth less than $11.4 million in 2019? You’re in luck—you can die knowing that all of your money will pass free of any federal estate tax to your heirs.

It was good news for the wealthy—the Tax Cuts and Jobs Act (TCJA) amped up the unified federal estate and gift tax exemption to $11.4 million for 2019 (and up to $11.18 million in 2018). If that wasn’t generous enough, those exemptions will be increased annually for inflation from 2020 to 2025. As comedian Mel Brooks would say, “It’s good to be the king.”

MarketWatch’s recent article, “How single folks should handle estate-tax planning under the new tax law,” explains that taxable estates above the exemption will have the excess taxed at a flat 40% rate. An individual’s cumulative lifetime taxable gifts in excess of the exemption are taxed at the 40% rate. Likewise, taxable gifts are those that are more than the annual federal gift tax exclusion of $15,000 for 2018 and 2019.

Tis the Season to Be Generous—Thanks to the IRS

Published on: December 22, 2018 | By McCulloch & Miller, PLLC

An end-of-year decision from the IRS about the new tax law and gifting has given people with generous spirits and hefty bank accounts reasons to be cheerful about gifting.

Increases to basic estate and gift tax exemptions were welcome by many, when the new tax law details were unveiled. However, questions were raised: how long will those exemptions be in place? What happens when they expire?

The changes increased the exemption to $10 million per person from $5 million. When you account for inflation adjustments, that exemption is currently at $11,180,000 for 2018, increasing to $11,400,000 for 2019.