Personal Attention, Experienced Legal Guidance

Does your estate plan protect your loved ones from taxes?

On Behalf of | Jul 14, 2022 | Estate Planning

The property that belongs to you when you die will become your estate. If you have enough assets in your name or if you will pass real property to your loved ones, your estate will likely require oversight by the Texas probate courts.

Sometimes, if your estate is valuable enough or you transfer property in certain ways, the beneficiaries of your estate or the representative administering your estate may need to pay taxes. If you didn’t consider taxes when drafting your estate documents, your loved ones may be in for an unpleasant shock during probate proceedings.

What kind of taxes may apply?

The two most common taxes that affect estates in Texas are income taxes and estate taxes. The representative of your estate will have to file a final tax return in your name and resolve any outstanding income tax obligations you had at the time of your death with estate assets.

In some cases, they may also need to use estate property to pay estate taxes. Texas does not assess an estate tax or an inheritance tax, but the federal government does. If the total value of your estate is over $12,060,000, then federal estate taxes will diminish how much of your property passes to your loved ones. Unless you plan ahead to avoid those estate taxes, possibly by making gifts or creating a trust, you could lose as much as 40% of your estate to the government.

Your plans can trigger other taxes as well

Depending on the instructions that you leave when you die and how you transfer your property, there could be other text implications to consider.

For example, arranging to have a child inherit your house by executing a deed now so that they can transfer the property immediately after your death could lead to capital gains taxes, especially if they sell the property shortly after inheriting it. Instructing the representative of your estate to sell all of your property may trigger income taxes for the states if those sales results in more than $600 worth of revenue.

Learning more about the taxes that apply to states can help you structure your will or trust in a way that will limit your text liabilities.