Texas Estate Planning Still Matters Even Though No State Estate Tax

by | Jun 28, 2024

Living in Texas, you’ve probably had a sigh of relief shared by many when they learn there’s no state estate tax. It’s like finding out that your favorite BBQ joint isn’t going to charge you more for that extra side of brisket—it just makes a good thing even better. Unfortunately, that is not the end of the story though, because not having a state estate tax doesn’t mean you should skip the estate planning process altogether.

In the Lone Star State, an emphasis on independence is a source of pride. So, when it comes to estate planning, think of it not as a mere legal obligation but as an extension of your self-reliance and foresight.

Estate planning is like having a roadmap for your assets to ensure your hard-earned property goes exactly where you want it to after you’re gone. Just because Texas doesn’t take a bite out of your estate doesn’t mean the federal government won’t, or that other pitfalls can’t arise. It’s about protecting your assets, not just from taxes, but from any future legal wrangles.

Federal Estate Taxes: Timing Matters

In 2024, the federal estate tax exemption stands at $13.61 million. However, unless you plan on passing this year or next, be aware that the law changes on January 1, 2026. The estate tax exemption will be cut in half on that date. While half may still seem like a lot, you will be surprised by how quickly the numbers add up the value of your home, life insurance, IRAs and 401(k)s, collectibles, brokerage and savings accounts, and every other asset. That does not even include the growth in those assets over time that will make the estate tax exemption look smaller and smaller as time passes. Thus, while the estate tax exemption is still high, you should start your planning now in 2024. You may need to take advantage of these high exemptions while they are still around.

Understanding Your Assets

Knowing what you own is the first step to planning how to pass it on. This includes your home, savings, investments, and your heirlooms or collectables. Each piece of your estate is a thread in the tapestry of your legacy.

Protecting Your Loved Ones

The last thing you want is for your family to get tangled up in legal hassles because you didn’t leave clear instructions. Estate planning is your way of guiding them from beyond, making the transition as smooth as possible.

Legal Instruments for Texans

There’s a whole arsenal of tools at your disposal, from wills to trusts, each with its own role in safeguarding your assets. These instruments are the deputies that keep order when the sheriff’s out of town. Wills and trusts aren’t just fancy paperwork; they’re the map and compass that help your estate navigate the future. They direct your assets to where you want them to go with the least amount of legal red-tape or taxes.

Debunking Estate Planning Myths

Many think that estate planning is just for the Rockefellers of the world, but that’s far from the truth. Whether you have a little or a lot, estate planning is important so that you do not burden your family with unnecessary risks, high legal fees, burdensome taxes, and a court meddling in your family’s affairs.

Power of Attorney and Health Care Directives

What if you’re still around but can’t communicate your wishes due to health issues? That’s where powers of attorney and health care directives come in. They speak for you when you can’t. Through these documents, you can make sure that doctors follow your wishes if you are comatose or otherwise not able to make decisions for yourself, as well as give your family the power to make decisions when you are not able to. These documents are very important in difficult situations.

Estate Planning for Business Owners

If you own a business, estate planning becomes as critical as a well-maintained tractor. Without it, your business could end up drifting aimlessly without direction, or even worse, your business may have to be sold by your family to pay estate taxes. The IRS requires appraisals of business values that include not just the assets but the value of the stream of future cash flow and profits. Business owners are often surprised by the high valuations placed on businesses. Do not be caught off-guard after its too late and then leave a mess for your family and/or business partners.

Regular Updates and Reviews

Estate plans are like your favorite leather boots; they need care and occasional polishing to stay in top shape. Life changes, and so should your estate plan.

Conclusion

A well-planned estate makes for a peaceful transition. In Texas, not having to worry about state estate taxes is a blessing. However, please don’t let that lull you into complacency. Not only is the federal IRS still an issue, but there are many other necessary decisions and documents that are important to a well-rounded estate plan. Estate planning is about riding into the sunset knowing your legacy will continue just as you intended.