An estate plan is essentially directions about what you want done with your property and your personal responsibilities after you die. You can name a guardian for your children or a caretaker for your pet. You can nominate someone to inherit your ranch and also a beneficiary for your life insurance.
The more property you have, the more complex estate planning may become. If you have significant assets, such as a large home or a business, you may need to plan ahead for estate taxes. Otherwise, a significant portion of what you intend to become your legacy will go to Uncle Sam instead.
Texas doesn’t have a tax, but the federal government does
A small number of states collect estate taxes from executors or inheritance taxes from beneficiaries, but Texas isn’t one of them. Although Texas does not assess any inheritance or estate taxes, the federal government does.
Thankfully, the cutoff for estate taxation is relatively high. In 2022, only estates worth more than $12,060,000 have to worry about the state taxes. If your property is close to that threshold, proper planning to reduce tax liability is a smart decision.
By creating a trust or making gifts to reduce your tax liabilities, you can limit not just how much of your estate is subject to taxation but also the tax rates that you pay. The more your estate value exceeds the federal exemption, the higher the rates you pay. Some people pay as much as 40% of their estate in taxes to the federal government.
Careful advance planning is the only way to minimize the risk of estate taxes in a high-asset estate plan.