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Does Texas Have an Estate or Inheritance Tax? Understanding State and Federal Tax Laws

One of the most common questions people ask when planning their estates is: Does Texas have an estate or inheritance tax? The good news is that Texas does not impose an estate tax or an inheritance tax. However, federal estate tax laws may still apply, and it is essential to understand how taxes can affect estate planning and asset distribution.

At The Lange Firm, led by Evan Lange, we help individuals and families in Texas navigate estate planning, probate, and tax-related concerns. While Texas does not impose its own estate or inheritance tax, other financial obligations—such as federal estate taxes, capital gains taxes, and gift taxes—may still impact an estate.

Learn more about our estate planning services here.

Does Texas Have an Estate or Inheritance Tax?

Texas Estate Tax

Texas does not have an estate tax. In 2005, the state eliminated its estate tax after changes to federal tax law phased out the state death tax credit. This means that, in Texas, estates are not subject to additional state taxation upon the death of the owner.

Texas Inheritance Tax

Texas also does not impose an inheritance tax. Inheritance tax differs from estate tax because it is paid by the heirs who receive assets, rather than the estate itself. Some states still have inheritance taxes, but Texas is not one of them.

While Texas does not impose either of these taxes, federal estate taxes may still apply to certain high-value estates.

What Is the Federal Estate Tax and Does It Apply in Texas?

Even though Texas does not have its own estate tax, individuals should be aware of federal estate tax laws, which may apply to larger estates.

Federal Estate Tax Threshold

The federal estate tax applies to estates that exceed a certain value, which is adjusted annually. As of 2024, the federal estate tax exemption is $13.61 million per person (or $27.22 million for married couples with portability).

How Federal Estate Tax Works

• If an estate is valued below the exemption → No federal estate tax is owed.
• If an estate is valued above the exemption → The portion exceeding the limit is taxed at rates up to 40%.

✔ Important Tip: Many estates in Texas do not owe federal estate taxes due to the high exemption limit. However, individuals with significant assets should plan ahead to minimize tax liabilities.

What Are Gift Taxes and How Do They Affect Estate Planning?

Federal Gift Tax

While Texas does not have a state gift tax, the federal government imposes a gift tax on individuals who transfer significant assets during their lifetime.

✔ 2024 Gift Tax Exclusion: Individuals can give up to $18,000 per recipient per year without triggering federal gift tax requirements.

✔ Lifetime Gift Tax Exemption: The total lifetime gift tax exemption aligns with the federal estate tax exemption ($13.61 million per individual in 2024).

If an individual exceeds the annual exclusion limit, the excess amount is deducted from their lifetime exemption. Gifts beyond the lifetime exemption are subject to a 40% gift tax rate.

How Gift Tax Affects Estate Planning

✔ Reducing Taxable Estates: Making tax-free gifts during your lifetime can help reduce the size of your estate and minimize potential federal estate tax obligations.

✔ Education & Medical Exemptions: Payments made directly to educational institutions for tuition or to healthcare providers for medical expenses are not subject to the gift tax.

What About Capital Gains Taxes in Texas?

Texas Capital Gains Tax

Texas does not impose a state capital gains tax, but federal capital gains taxes still apply. When selling inherited assets, beneficiaries may be subject to federal capital gains tax, depending on whether the asset increased in value.

✔ Step-Up in Basis Rule
One major benefit for heirs is the step-up in basis rule. When an heir inherits assets, the value is adjusted to the market value at the time of the decedent’s death. This can reduce capital gains tax liability when the asset is eventually sold.

✔ Example:

• If a parent purchased stock for $50,000 and it is worth $200,000 at the time of death, the heir receives a stepped-up basis of $200,000.
• If the heir sells the stock for $210,000, they only owe capital gains tax on the $10,000 profit, not the entire gain from the original purchase price.

Estate Planning Strategies to Minimize Tax Liability

While Texas does not have an estate or inheritance tax, proactive estate planning can help reduce potential federal estate tax exposure, capital gains taxes, and gift tax liabilities.

1. Create a Revocable Living Trust

A revocable living trust allows individuals to control their assets during their lifetime and pass them to beneficiaries without probate. While trusts do not eliminate estate taxes, they can:

✔ Protect assets from probate
✔ Ensure efficient wealth transfer
✔ Provide privacy for beneficiaries

Learn more about revocable living trusts here.

2. Maximize Annual Gift Tax Exemptions

By gifting assets strategically, individuals can reduce the size of their taxable estate while helping heirs benefit from wealth transfers.

✔ Example: A couple could gift $36,000 per year ($18,000 per spouse per recipient) to multiple children and grandchildren without affecting their lifetime exemption.

3. Use Charitable Giving Strategies

Charitable contributions can provide tax benefits while supporting causes that matter. Popular options include:

✔ Charitable Remainder Trusts (CRTs) – Provides income to beneficiaries before donating the remainder to charity.
✔ Donor-Advised Funds (DAFs) – Allows individuals to donate assets to a fund and recommend grants to charities over time.

4. Establish a Family Limited Partnership (FLP)

High-net-worth individuals can use an FLP to transfer assets to family members while maintaining control over the business or investment portfolio. This strategy can help:

✔ Minimize estate tax exposure
✔ Facilitate intergenerational wealth transfers

Does Texas Have an Estate or Inheritance Tax? Final Thoughts

✔ Texas does NOT have an estate tax.
✔ Texas does NOT have an inheritance tax.
✔ Federal estate taxes may still apply to estates exceeding $13.61 million in 2024.
✔ Federal capital gains taxes may apply when selling inherited assets.
✔ Proper estate planning can reduce tax burdens and simplify wealth transfers.

While Texas provides a favorable tax environment for estates, federal tax laws can still impact how assets are transferred and taxed. Working with an experienced estate planning attorney can help individuals develop tax-efficient strategies that preserve wealth for future generations.

How The Lange Firm Can Help

At The Lange Firm, we assist clients in Texas with:

✔ Estate tax planning to reduce potential federal tax liabilities.
✔ Trust creation to protect assets and streamline inheritance.
✔ Charitable giving strategies to maximize tax benefits.
✔ Probate and estate administration to ensure assets are distributed according to your wishes.

Contact us today to discuss how to best protect your estate.

Conclusion

For individuals asking, “Does Texas have an estate or inheritance tax?”, the answer is no. However, federal estate taxes, gift taxes, and capital gains taxes may still apply to high-value estates. By implementing effective estate planning strategies, individuals can minimize tax burdens, protect their wealth, and ensure a smooth transition of assets.

If you need guidance on estate planning, trusts, or tax strategies, consulting with an experienced attorney can help you develop a customized plan to safeguard your legacy.