Estate planning can be confusing, especially when it involves tax law. The good news is that Texas is tax-friendly and does not require an estate or death tax; however, it does require an inheritance tax. A federal estate tax is a tax paid based on the net value of the property of the deceased person. In contrast, an inheritance tax is the state tax that your beneficiary pays when they inherit money or property. With an estate tax, the taxes are paid before your heirs even get the money or property. But with an inheritance tax, your heirs pay the tax when they receive the money or property.
Although Texas doesn’t require that one pay an estate tax, that doesn’t mean that no one has to pay. In some instances, your heirs may have to pay additional taxes if you leave them property in another state where there are estate or inheritance taxes. Additionally, your heirs may also be subjected to federal tax law and may receive a hefty tax bill from the state where the property is located.
For instance, let’s say that you live in Texas (where there is no estate tax) but you own millions of dollars in property in Maryland. In Maryland, there is an estate tax but in Texas, there isn’t. In this instance, your heirs who inherit the millions of dollars in Maryland property after you die will likely have to pay taxes to the state of Maryland based on the value of the property they inherited. Additionally, your heirs might also have to pay a hefty federal estate tax bill as well.
By now, you are either nodding your head in agreement because you completely understand how this works, or you have an awful migraine because you’re even more confused. Either way, don’t worry because estate planning and tax law is extremely complicated.
The good news is that you don’t have to figure this out on your own. Ibekwe Law, PLLC has years of legal experience and can clear up the murky waters of estate planning and taxes (death and taxes, if you will), and give you sound legal advice on the best way to proceed, based on your specific situation.
Contact Ibekwe Law, PLLC to see if we can help today!