If you live in Texas, you may be aware that the state does not impose inheritance or estate tax. However, your estate may still be subject to federal estate taxes.
Review the federal laws regarding estate taxes to understand how they may affect your family members and other estate beneficiaries.
Federal estate tax rates
The government only requires estate tax for estates worth at least $11.58 million as of 2020. The tax rate increases depending on the taxable amount, starting at 18% for taxable assets up to $10,000 and climbing to 40% for taxable assets that exceed $1 million.
Strategies to lower estate tax
Property that you leave to your surviving spouse is not subject to federal estate tax. For this reason, you may want to make your spouse your primary beneficiary.
You can also consider giving away assets to your heirs while you are still alive. As of 2020, you can gift up to $15,000 in tax-free funds, with a current lifetime maximum of $11.58 million. You can also donate funds to qualifying charities since the federal government does not impose estate taxes on these gifts.
If you have life insurance, you can establish an irrevocable trust for the proceeds of your policy. This prevents these assets from taxation, but you cannot change this type of trust after creating it. For real estate, you may be able to limit the tax burden with a qualified personal residence trust.
Careful estate planning can help make the most of your lifetime earnings and make sure that you can provide for your survivors as intended.