The Tax Consequences When a Loved One Dies in Texas
If you’ve been named as the executor, administrator, or personal representative of the estate of a loved one, there are a number of steps you’ll need to take to settle their estate. One of those tasks is to ensure the payment of any tax liabilities of the estate. The potential tax liabilities of an estate include two types of assessments: an estate tax and an inheritance tax. Estate taxes are levied by the federal government and inheritance taxes are assessed at the state level.
If your loved one was a Texas resident at the time of death and the estate is settled in Texas, there’s good news—you won’t have to pay a state inheritance tax. Though many states used to assess such a tax, only a handful still do, and Texas is not one of them.
That doesn’t mean, however, that the estate won’t have any tax liability. There’s still a federal estate tax that can be levied on the transfer of property at death.
What Is an Estate Tax?
Estate taxes are collected by the Internal Revenue Service. The IRS defines an estate tax as a tax on the “right to transfer property at your death.”
How Does the Federal Estate Tax Work?
Under federal law, an estate tax may be assessed on the gross estate, which includes the fair market value of all property that transfers upon death. It’s important to understand that property that passes in other ways won’t be included in the gross estate:
- Property that has been placed in a trust is no longer owned by the deceased and is not subject to the estate tax.
- Property that is owned jointly by the deceased and others still living will pass automatically to them, avoiding both probate and the estate tax.
- Property that has been gifted during the decedent’s lifetime is not subject to the estate tax.
Once the amount of the gross estate is calculated, the estate is allowed to claim a credit against the gross estate. This credit, known as the unified credit, exempts estates under a specific dollar amount in value from any estate taxation. It is referred to as a unified credit because it applies to both lifetime gifts and property that is passed on through an estate (it “unifies” the gift and estate tax liabilities). For 2022, the unified credit for an individual is $12.06 million and for couples is $24.12 million.
How Can You Reduce Your Potential Federal Estate Tax Liability?
Although most people won’t have an estate with sufficient value to incur a potential estate tax, it’s still important to understand ways that you can reduce the potential tax liability:
- Donations to qualified charities
- Lifetime gifts
- Spending assets to get under the amount of the unified credit
At the law office of Bailey & Galyen, we offer a free initial consultation to every client. To schedule an appointment with an experienced and knowledgeable estate planning lawyer, Contact us by email or call 844-402-2992. You also can call our offices at one of the convenient locations listed below. We will take your call 24 hours a day, seven days a week.
