How to Minimize Estate and Income Taxes for Texas Spouses

While there are many intricacies to estate planning, married couples may utilize some different strategies when crafting their estate plan. This may include assessing the couple’s tax liability and deciding who to gift their assets and property to if they were both to pass away. And there are many tax benefits that spouses can take advantage of—both federally and in Texas—during their lives and after one spouse has passed away. Below are common questions about spousal trusts and estate plans and explanations to these potential queries.

What Tax Differences Are There for Married Couples?

One tax advantage for married couples in Texas is they are given a higher estate tax exemption limit. This means the total value of their estate may be higher before they are required to pay an estate tax—as compared to a single individual. In 2022, a single individual must pay an estate tax if their estate is valued at over $12,060,000. However, a married couple must pay the estate tax if their estate is more than $24,120,000. It is important to note that this exemption limit is set to decrease in 2026 to $10,000,000 per married couple.

What is a Bypass Trust, and Can I Benefit From One?

Some married couples also plan ahead and decide to create a bypass trust. A bypass trust is an irrevocable trust that allows married couples to avoid the estate tax on certain assets when one of the spouses passes away. Most often, these assets that the surviving spouse does not need to pay the estate tax on include IRAs or 401(k) proceeds. Because the trust is irrevocable, the spouses cannot touch the assets in the trust until the person has passed away—meaning, the funds are not accessible, and the trust cannot be reversed. Additionally, the surviving spouse does not technically own the funds in the bypass trust—but they are able to access the funds in the trust and use them as they wish. Some couples will name the surviving spouse to act as the trustee, while others will name another person to act as the trustee and oversee the asset management.

Bypass trusts only work for those assets that the spouse who passed away owned separately. Assets jointly held will not be taxed until the second spouse has died.

Because estate planning strategies vary depending on a person’s relationship status, individuals beginning the estate planning process—or who are curious if their current estate plan is as financially advantageous as possible—should reach out to a knowledgeable estate planning attorney right away.

Contact a Houston Estate Planning Attorney

If you or a loved one has questions about your estate plan, reach out to the experienced Houston estate planning attorneys at McCulloch & Miller, PLLC. Our knowledgeable attorneys have decades of experience creating estate plans, revising old estate plans, and advising couples on how to obtain the most advantageous tax situation possible. We know that estate taxes, IRAs, and 401(k)s can be complicated, so we are here to help. To speak with one of our attorneys and to schedule a free, initial consultation, give us a call today at 713-333-8900.

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