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People often hear the term estate tax and immediately worry their family might lose a large portion of their inheritance. In Texas, that fear can sometimes be misplaced. Texas estate taxes work differently compared to other states, and most residents won’t owe anything at the state level. Still, large estates can face federal estate taxes if they cross a specific value. Knowing the thresholds and what counts toward the total estate helps families avoid surprises.
What Are Estate Taxes?
Estate taxes apply to the transfer of assets after someone dies. These taxes come out of the total value of the deceased person’s estate before anything passes to beneficiaries.
There are two types:
- Estate Tax: This is charged against the estate itself before heirs receive anything.
- Inheritance Tax: This is charged to the person receiving the inheritance.
Texas does not have either tax at the state level, but large estates may still face federal estate tax.
Does Texas Have Estate or Inheritance Taxes?
Texas repealed its estate tax and inheritance tax years ago. The state allows residents to transfer wealth without paying a separate state tax when someone dies.
This means:
- No estate tax for Texas residents
- No inheritance tax for heirs living in Texas
- Out-of-state laws could still apply if the decedent owned property elsewhere
Although Texas does not impose its own estate tax, families must still consider federal tax laws if the estate exceeds certain thresholds.
When Does Federal Estate Tax Apply?
The IRS sets a limit called the federal estate tax exemption. Estates under this value owe no federal estate tax. Estates above it must pay a percentage on the amount over the limit.
2025 Federal Estate Tax Exemption
For 2025, the exemption is $13.61 million per person. This means:
- Individuals can leave up to $13.61 million tax-free
- Married couples can combine exemptions for a total of $27.22 million
If your estate stays below these figures, it won’t owe federal estate tax. If it exceeds them, the IRS may tax up to 40 percent of the excess amount.
What Counts Toward the Estate Value?
To know if an estate meets the federal threshold, you must calculate the total gross estate value. This includes all property the person owned or had an interest in.
Items Included in Gross Estate
- Real estate
- Bank accounts
- Investment portfolios
- Business interests
- Life insurance payouts (if the decedent owned the policy)
- Retirement accounts
- Personal property (vehicles, jewelry, art, etc.)
Once these assets are totaled, debts and funeral expenses can reduce the estate’s value before applying the exemption.
How to Reduce Federal Estate Tax Exposure
Many Texans who worry about reaching the exemption limit take steps during their lifetime to reduce the taxable value of their estate. This kind of planning helps protect what they’ve built for future generations.
Common Strategies
- Gifting: Individuals can give away up to $18,000 per person each year without triggering gift tax. This gradually reduces the estate size.
- Irrevocable Trusts: Assets placed in certain trusts may not count toward the estate value.
- Charitable Contributions: Donations to qualified nonprofits reduce the taxable estate.
- Valuation Discounts: For business interests or family-owned assets, strategic valuation can lower taxable amounts.
These options work best when done early. Waiting until the last moment often limits your choices.
What Happens When Someone Dies in Texas?
When a Texas resident dies, their estate goes through a process called probate. This is the court-supervised process of distributing the estate, paying debts, and transferring property to heirs.
Even though Texas doesn’t tax the estate, the executor still handles:
- Filing the final tax return
- Identifying assets and debts
- Providing information to the IRS (if required)
- Preparing estate tax forms if the value exceeds the federal threshold
In most Texas estates, the federal forms are not required. But it’s important to double-check, especially if the estate includes large life insurance policies, business holdings, or out-of-state property.
What About Nonresidents With Texas Property?
Someone who lived outside Texas but owned property in the state may still create tax questions. While Texas won’t apply a state estate tax, their home state might. Also, federal rules still apply to any U.S.-based property.
The estate’s executor must account for all property, including Texas real estate, and include it in the total federal calculation.
Should You Be Concerned About Estate Tax?
Most Texans won’t owe estate tax unless they’ve built significant wealth. But that doesn’t mean everyone should ignore estate planning. Failing to plan can lead to confusion, delays, and conflict between heirs. Estate planning also helps control what happens to your property, even if tax isn’t a concern.
Ask yourself:
- Do I own a business or valuable property?
- Do I have life insurance policies or large investments?
- Do I want to protect my family from legal costs?
- Do I have specific wishes for my estate?
If the answer is yes, you should consider estate planning now, even if you expect your estate to fall under the federal limit.
How Our Firm Helps With Estate Planning in Texas
Tax laws change. Estate values change. Your plans should adjust too. Our firm works with Texas families to build solid estate strategies that reflect their goals, reduce tax exposure, and protect loved ones.
We help with:
- Drafting wills and living trusts
- Reviewing asset structures and valuations
- Building gift plans that reduce your estate’s value over time
- Preparing for federal estate tax filing
- Coordinating with CPAs and financial planners
We don’t offer one-size-fits-all advice. Every estate needs a custom strategy that considers size, goals, and risk. Whether you’re planning early or responding to a sudden loss, we guide you step by step.
Final Thoughts
Texas doesn’t impose a separate estate tax, but federal estate taxes can still apply to large estates. The $13.61 million exemption covers most families, but rising property values, investments, and life insurance can push some estates closer to the limit than expected.
If your estate includes valuable assets or you want to control how your legacy gets passed on, it pays to plan ahead. Don’t wait until it’s too late. A solid estate plan protects your assets, avoids disputes, and saves your heirs time and money.
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Frequently Asked Questions
No, Texas does not impose a state-level estate tax. However, federal estate taxes may still apply if the estate’s value exceeds certain thresholds.
Inherited money is generally not subject to income tax in Texas. However, it’s important to consider federal tax implications and consult with a tax professional for specific situations.
Texas does not have a separate probate tax. However, there may be court fees and other expenses associated with the probate process.
In Texas, a valuable exemption known as the homestead exemption is available for primary residences. The exemption reduces the taxable value of the property and can lead to significant property tax savings.
