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Death Tax in Texas: What You Need to Know About Estate and Inheritance Taxes

Many people worry about death taxes when planning their estate or inheriting assets. Fortunately, Texas does not impose a state-level estate or inheritance tax. However, federal estate taxes may still apply, and proper planning is crucial to minimize any tax burdens.

In this guide, we’ll explain:

• Whether Texas has a death tax
• How federal estate taxes affect large estates
• Ways to minimize estate tax liability

Does Texas Have a Death Tax?

No, Texas does not have a state estate tax or inheritance tax. This means that when someone passes away, their heirs do not owe Texas-specific death taxes on the assets they inherit. However, there are other tax considerations to keep in mind.

What About Federal Estate Taxes?

While Texas does not impose a death tax, the federal estate tax still applies to high-value estates. The federal estate tax threshold in 2024 is $13.61 million per individual (or $27.22 million for married couples with proper estate planning).

How Federal Estate Tax Works:

• If an estate’s total value exceeds $13.61 million, the amount above that threshold is taxed at rates up to 40%.
• Estates below this threshold owe no federal estate tax.
• Assets passed to a spouse are exempt under the marital deduction.

Inheritance Taxes vs. Estate Taxes: What’s the Difference?

Some states impose inheritance taxes, which require beneficiaries to pay taxes on what they inherit. However, Texas does not have an inheritance tax.

If you inherit assets in Texas, you do not pay state inheritance tax—even if the deceased lived in a state that has one.

How to Reduce Estate Tax Liability

Even though Texas does not impose estate taxes, high-net-worth individuals may still need estate tax planning to minimize federal taxes. Here are some strategies:

1. Utilize the Annual Gift Tax Exclusion

The IRS allows individuals to gift up to $18,000 per recipient per year (as of 2024) without triggering federal gift taxes. Strategic gifting reduces the taxable estate.

2. Set Up a Trust

Using an irrevocable trust can help remove assets from the taxable estate while still providing benefits to beneficiaries.

3. Maximize the Marital Deduction

Assets passed to a spouse are exempt from estate taxes. Proper planning ensures a surviving spouse can use the unused estate tax exemption under portability rules.

4. Make Charitable Donations

Donating a portion of your estate to charity reduces the taxable estate and supports causes you care about.

5. Use Life Insurance Trusts

Life insurance proceeds may be subject to estate taxes if owned by the deceased. Placing policies in an Irrevocable Life Insurance Trust (ILIT) helps avoid taxation.

Common Myths About Death Taxes in Texas

1. “Texas Imposes a Death Tax on Inheritances”

False—Texas does not have an inheritance tax or estate tax.

2. “All Inheritances Are Tax-Free”

While Texas does not tax inheritances, federal estate taxes still apply to large estates, and income tax may apply to certain inherited assets like 401(k)s and IRAs.

3. “If I Inherit Property, I Owe Capital Gains Tax Immediately”

No—heirs receive a step-up in basis, meaning capital gains taxes only apply to appreciation after the inheritance.

Conclusion

Texas does not impose a death tax, making it an attractive state for estate planning. However, federal estate taxes still apply to high-value estates, and planning ahead can help minimize tax burdens.

If you need guidance on estate tax planning, trusts, or inheritance laws, The Lange Firm is here to assist you. Contact us today to ensure your estate is protected.