Estate Tax Planning
Avoiding Unnecessary Tax Burdens and Protecting Your Legacy
Estate tax planning is an essential part of protecting your wealth and ensuring that your loved ones are taken care of after you’re gone. While Texas does not have a state inheritance or estate tax, Texas residents may still be subject to federal estate tax laws. Understanding these laws and how they apply to your assets can help you plan effectively and avoid unnecessary tax burdens on your estate. The attorneys at Barnes Lipscomb & Stewart PLLC can assist you in developing strategies and implementing documents that are suitable to your unique circumstances.
In addition, regular estate plan reviews help ensure that your documents will still work as they were originally designed, and the review provides an opportunity to make any needed course corrections based on your present situation, your future goals, and whatever tax law is currently in place. For example, your estate plan may need to include all necessary provisions to take advantage of portability and other tax-saving strategies.
What is the Federal Estate Tax?
The federal estate tax is a tax on the transfer of a person’s assets after death. This tax is often confused with an inheritance tax, but in reality, it is a transfer tax. There are three types of federal transfer taxes:
- Estate Taxes
- Gift Taxes
- Generation-Skipping Transfer Taxes (GSTT)
Effective estate tax planning helps minimize these taxes and preserve more of your wealth for your heirs.
Recent Changes to Federal Estate Tax Laws
The most recent changes to federal estate tax laws were part of the Tax Cuts and Jobs Act of 2017 (TCJA 2017). The estate tax exemption is currently $13,990,000 in 2025 per individual (based on an exemption of $10 million, indexed for inflation; which is due to sunset back to $5 million, indexed for inflation, on January 1, 2026, unless there is new legislation). This means a married couple could pass up to $27,980,000 without incurring any estate tax liability. Any amounts in excess of the exemption amount are taxed at a maximum rate of 40%.
Portability and How It Impacts Austin Taxpayers
The concept of portability, introduced in 2010 and made permanent in 2013, allows a surviving spouse to use any unused portion of their deceased spouse’s estate tax exemption. This means that careful planning can effectively double the estate tax exemption for married couples. However, to take advantage of this benefit, you must ensure that your estate planning documents (Will or Trust) include the necessary provisions and/or that your estate is administered with the help of a knowledgeable probate attorney.
Gift Tax and Annual Gift Exclusion
In addition to the estate tax, federal law imposes a gift tax, which applies to certain transfers made during your lifetime. The lifetime gift tax exemption is unified with the estate tax exemption, meaning any gifts made over your lifetime will reduce the amount of estate tax exemption available upon your death.
The lifetime gift tax exemption matches the estate tax exemption (currently $13.99 million per individual in 2025). However, each person may make annual gifts of up to $19,000 per recipient without affecting the lifetime exemption amount. Married couples can combine their annual exclusions to give $38,000 per recipient.
Gifts that exceed the annual exclusion amount must be reported to the IRS when you file your personal income tax return (using a Gift Tax Return, Form 709). No tax is due for gifts less than the unified estate and gift tax exemption amount, but as mentioned above, the exemption amount available for your estate at your death is reduced by the amount of all lifetime gifts (in excess of the annual exclusion amount, currently $19,000 per donor per donee).
Generation-Skipping Transfer Tax (GSTT) Planning
The Generation-Skipping Transfer Tax (GSTT) is an additional 40% tax that applies when property is passed to someone who is two or more generations younger than the person transferring the assets, such as a grandparent transferring assets to a grandchild. Like the estate and gift tax exemptions, the GSTT exemption is set at $13.99 million per individual for 2025. Proper planning can help you use this exemption to transfer significant wealth to future generations without incurring additional taxes.
Roth IRAs and Estate Planning Benefits
When it comes to estate tax planning, Roth IRAs offer a significant income tax advantage. If you pass away and leave a Roth IRA to your heirs, they can withdraw from the account income tax-free, as long as the account has been open for more than five years. Additionally, Roth IRAs are exempt from required minimum distributions (RMDs), allowing the account to grow without mandatory withdrawals, potentially leaving more for your heirs. The attorneys at Barnes Lipscomb & Stewart, PLLC are available to discuss Roth IRAs and other estate planning tools that can benefit your heirs.
Why Estate Tax Planning Matters in Austin, Texas
Even though Texas does not impose a state inheritance or estate tax, residents need to be mindful of federal estate tax laws. Without proper planning, your estate could be subject to significant taxes. By working with an experienced estate tax planning attorney, you can develop strategies to minimize these taxes and protect your assets for your family.
Get Started with Estate Tax Planning Today
The team at Barnes Lipscomb & Stewart is here to help you navigate the best strategies for your estate tax planning. Proper estate tax planning can help you reduce taxes and leave a lasting legacy. We are committed to helping you create a comprehensive estate plan that protects your wealth and your family’s future. Contact us today to schedule a consultation and start securing your legacy.