The importance of Understanding All Tax Implications When Estate Planning

One of the most frustrating aspects of estate planning can be having to pay out a percentage of assets to the government or to others who have a claim on your estate. In Texas, tax implications depend on the estate strategy that you choose. Today, we review some of the tax implications of estate planning with an eye toward minimizing tax liability.

What is an Estate Tax?

Texas is one of 38 states that does not require residents to pay an estate tax. In states without this benefit, an individual’s estate will have to pay a certain percentage of their assets to the state government upon that person’s death. This is good news: by living in Texas, you already avoid a tax that residents of some other states will have to pay.

Texans do, however, still pay a federal estate tax. This kind of tax can be generally broken up into three different taxes: the estate tax, the gift tax, and the generation-skipping transfer tax.

The Estate Tax

The federal estate tax is a tax on property that goes from a decedent to his or her heirs. As of 2017, only individuals with $11,200,000 or more are subject to this tax. It is possible, though, for wealthy individuals to put money into tax-free trusts in order to avoid having to pay this 40% tax.

The Gift Tax

The federal government allows individuals to give away a certain amount of money over their lifetimes without having to pay a federal gift tax. As of 2023, the lifetime gift tax exemption amount is $12.92 million. For married couples, the amount doubles. When individuals give more than $12.92 million, they are then taxed on what they give over the exemption amount.

The Generation-Skipping Transfer Tax

This kind of tax is a tax on any gift that goes from a grandparent to a grandchild. Before this tax was put into place, individuals would often gift assets to grandchildren without paying estate taxes; today, however, grandchildren receive the same amount of assets as their parents would if the grandparents did not skip a generation. Importantly, the tax only applies when the amount exceeds $12.06 million per person.

These different tax implications can end up having huge consequences for those looking into their estate planning strategies. If you are wondering if any of these tax liabilities apply to you and your loved ones, speak with an estate planning attorney who can provide well-grounded expertise to make sure you are doing everything you can to limit your own liability.

Are You in Need of an Estate Planning Attorney in Texas?

At McCulloch & Miller, we provide estate planning services backed by more than 35 years of experience in Houston. If you or a loved one needs advice or representation as you navigate the estate planning process, give us a call today at 713-903-7879. You can also fill out our online form to have an attorney reach out to you as soon as possible.

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