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How taxes could diminish someone’s final legacy

On Behalf of | Jul 5, 2024 | Estate Planning |

People putting together or modifying an estate plan have to address a variety of different concerns. Some of the more pressing issues include obligations that could diminish the value of their estates. Most adults want as much of their property as possible to pass to specific beneficiaries when they die.

They don’t want the government or other creditors to interfere with their plans. Estate taxes are a financial obligation that can drastically reduce how much property passes to someone’s family members when they die. Many people in Texas take for granted the idea that most or all of their resources should end up with their family members. Those with significant resources who fail to plan for taxes ahead of time may leave less for their loved ones than they expect.

Does Texas assess an estate tax?

Texas does not impose an estate tax on the property that belongs to individuals. The state also lacks an inheritance tax that forces beneficiaries to pay the government a portion of their inheritance. While the state doesn’t interfere with someone’s legacy, the federal government very well could.

People who own large ranches or successful businesses and those with large investment holdings could be at risk of federal estate taxes. Federal estate taxes apply to estates that are worth millions of dollars. As of 2024, an estate must be worth more than $13.61 million for estate taxes to apply. Smaller estates are not at risk of taxes.

The tax rate that applies depends on how large the estate actually is. The more an estate exceeds the exemption threshold, the higher the estate tax rate. The government can potentially claim anywhere from 18% to 40% of someone’s property after they die.

People plan for those taxes in a number of different ways. They might move assets to a trust. They might make regular gifts to family members to reduce what property they hold in their own names. Someone’s current relationships and the assets they want to protect influence the most effective strategy for limiting estate taxes.

Sitting down to review or create an estate plan requires that someone acknowledge the risks that could compromise their final legacy. A plan that properly addresses estate taxes can help someone maximize the positive impact that they can have on others when they die.