While drafting their estate plan, many individuals do not consider the taxes that will be taken from their assets after their passing. Because every state has different tax rates—and there are both estate tax and inheritance taxes to worry about—it can be confusing for Texans to determine what taxes apply to them. Beyond this, once people discover the estate and inheritance taxes their beneficiaries will be forced to pay, they often ask about strategies to limit their tax implications. Below are common questions and explanations about not only estate and inheritance taxes, but also options to reduce a person’s overall tax liability.
What Estate Planning Taxes Should I Be Worried About?
When drafting an estate plan, individuals should be aware of both estate and inheritance taxes. An estate tax is based on the value of the deceased’s estate. Additionally, the tax is paid from the assets of the deceased’s estate. On the other hand, inheritance taxes are paid by the beneficiaries of the estate based on the amount of assets they receive.
Thankfully for beneficiaries, Texas does not have an inheritance tax. However, the situation may be more complicated when the estate plan was drafted by an individual from another state. There is also no estate tax in Texas, but there is a federal estate tax that must be paid for estates with a value totaling $11.7 million or more.
How Do I Reduce My Tax Liability?
For individuals who will currently have to pay an estate tax based on the total value of their estate, there are strategies to help minimize the taxes they must pay. One option is to gift assets before the person passes away. This can include monetary assets too. Any funds gifted to others would reduce their estate’s total value and could move them under the $11.7 million limit.
Another option is to set up a trust for beneficiaries. Irrevocable trusts—which move assets from a person’s estate and do not allow the individual to remove it afterward—are not included in an estate’s total value. While people cannot handle funds placed in an irrevocable trust after the fact, the assets are given to beneficiaries according to the individual’s wishes after they have passed away. Therefore, individuals whose estate currently is over $11.7 million may consider moving some assets to an irrevocable trust in order to limit their tax liability.
Determining the tax implications of one estate plan is often a complicated ordeal, so it is important to speak to a knowledgeable estate planning attorney as soon as possible.
Contact a Texas Estate Planning Attorney
If you or a loved one is interested in reducing their estate planning tax liability, contact the Houston attorneys at McCulloch & Miller, PLLC. Our lawyers are kept up to date on current tax regulations and will inform you when changes arise. With decades of experience advising clients on federal and Texas estate planning issues, our dedicated attorneys will be able to determine ways to reduce your estate and inheritance tax liability. To schedule a free, no-risk consultation, give us a call today at 713-333-8900.