Texas does not have any state-specific estate or inheritance taxes. However, residents are still subject to federal estate taxes. The thought of losing a portion of your hard-earned assets to federal taxes can be overwhelming.
But the good news is, with a little preparation and knowledge, you can strategically position your estate to potentially reduce or even eliminate the amount owed in federal estate taxes.
Federal estate tax exemption
Every year, the federal government sets an exemption threshold for estate taxes. This means that if the value of your estate falls below this threshold, it will not be subject to federal estate taxes. By keeping track of this exemption limit, you can have a clearer understanding of the potential tax implications for your estate. In 2023, the federal estate tax exemption is $12,920,000.
One of the most straightforward ways to reduce the value of your estate is by gifting assets to your loved ones while you are alive. In 2023, the federal government allows individuals to gift $17,000 annually to as many recipients as they wish without incurring any gift tax. Over time, these gifts can significantly reduce the value of your estate, thereby decreasing potential estate tax liabilities.
Set up trusts
Establishing trusts can be an effective strategy to protect your assets from federal estate taxes. Trusts can remove assets from your taxable estate, providing more to your beneficiaries and less to taxes. There are various types of trusts, each with its own benefits and purposes, so research which one might be the most beneficial for your specific situation.
Make charitable donations
If you like helping people in need, then make charitable donations. These can serve a dual purpose: they can reduce the value of your taxable estate and leave a lasting legacy in causes you care about.
While federal estate taxes may seem intimidating, with proper preparation and proactive measures, you can protect your assets and ensure your loved ones reap the full benefits of your legacy. The effort you put in today can make a significant difference for your heirs tomorrow.