What Are the Tax Implications of Different Estate Planning Strategies in Texas?

When you create an estate plan in Texas, you must consider more than just how to divide your assets. Different estate planning strategies impact the taxes your estate and beneficiaries may owe. An estate planning lawyer in Austin, TX, can help this process move along effectively and efficiently. 

From an Estate Planning Lawyer in Austin, TX: Understanding the Tax Implications of Different Estate Planning Strategies

Federal Estate Taxes

Texas does not impose a state estate or inheritance tax; however, federal estate taxes still apply, depending on the total value of your estate. In 2025, the federal estate tax exemption is scheduled to decrease significantly. You should consider how asset appreciation and non-liquid holdings, such as real estate or business interests, can push the total value of your estate beyond federal limits. You can use tools like trusts to reduce your taxable estate and pass more wealth to your beneficiaries.

Using Lifetime Gifts to Minimize Estate Value

Lifetime gifts allow you to reduce your estate’s value while helping beneficiaries directly. Federal tax law permits annual exclusion gifts up to a certain limit per person without triggering gift taxes. You can also use your lifetime gift tax exemption to make larger transfers. By spreading out gifts over several years, you lower the taxable portion of your estate. 

Under Texas law, you do not owe state taxes on gifts, but you must report them federally when they exceed the annual exclusion amount. Documenting these gifts carefully helps avoid IRS scrutiny and supports transparency in your estate plan.

Step-Up in Basis and Capital Gains Implications

When you pass appreciated assets such as stocks or real property to beneficiaries, they generally receive a step-up in basis at your death. This means the asset’s tax basis resets to the fair market value on the date of death to reduce or eliminate capital gains tax when your heirs sell the property. You must weigh this tax benefit when deciding between gifting assets during your life or passing them on only after your death. In Texas, property values can often increase quickly, so the step-up in basis can result in significant savings for your heirs.

Tax Efficiency in Business Succession Planning

If you own a business in Texas, you need a succession plan that avoids unnecessary tax consequences. Transferring business interests into a family limited partnership (FLP) or limited liability company (LLC) allows you to retain control while using valuation discounts for gift or estate tax purposes. These structures reduce your taxable estate while keeping operations in the family. You also protect the business from probate complications, which can delay transitions and increase legal fees.

The estate planning strategies you choose directly affect the tax burden on your estate and beneficiaries. We can help you build a plan that capitalizes on the legal avenues available under Texas law while still complying with all federal requirements. Schedule a consultation with us today at Artie Pennington Law Offices in Kyle and Austin, TX, where we will work with you to preserve and protect your estate.

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