When people hear "estate tax," they often assume it's something only the wealthiest families ever have to think about. For most Texans, that's true, but not always, and the rules are worth understanding whether you're comfortably under the threshold or building an estate that may one day cross it. The tax landscape also changes with the political winds, which makes proactive planning valuable even when you owe nothing today.
Here's a plain-English look at how the federal estate and gift tax works, and what it means for families in Texas.
The Good News: Texas Has No State Estate or Inheritance Tax
Texas is one of the more tax-friendly states in this respect. There is no Texas estate tax and no Texas inheritance tax. Your heirs will not owe any state-level death tax on what they inherit from you. The only death tax that can apply to a Texas estate is the federal estate tax, and it reaches only estates above a very high exemption.
The Federal Estate Tax
The Exemption
The federal estate tax applies only to the portion of an estate that exceeds the federal exemption amount. That exemption is now historically high. As of 2026, it stands at $15 million per individual, meaning a married couple can generally shield roughly $30 million with proper planning, and it is indexed for inflation going forward. Because these figures are adjusted over time and can change with future legislation, you should always confirm the current numbers before making decisions.
The practical result is that the vast majority of estates owe no federal estate tax at all. But estates that exceed the exemption are taxed at rates that climb to 40 percent on the excess, so for families above the threshold, the stakes are significant and planning matters.
What Counts in Your Taxable Estate
One common surprise is how much is included in a "taxable estate." It's not just cash in the bank. Your gross estate generally includes:
- Real estate, including your home and any investment or out-of-state property
- Bank accounts, brokerage accounts, and other investments
- Retirement accounts such as IRAs and 401(k)s
- Business interests
- The death benefit of any life insurance policy you own or control
- Other valuable property, from vehicles to collectibles
That life insurance line surprises many people. A large policy can quietly push an otherwise moderate estate over the line, which is one reason irrevocable life insurance trusts exist.
The Federal Gift Tax
The gift tax exists to prevent people from simply giving everything away during their lifetime to sidestep the estate tax. It works hand in hand with the estate tax.
The Annual Exclusion
You can give a certain amount to any number of people each year with no gift tax consequences and without using up any of your lifetime exemption. This annual exclusion is adjusted periodically for inflation, for example, it was $19,000 per recipient in 2025. A married couple can combine their exclusions to give double that amount to each recipient. Consistent annual gifting is one of the simplest and most effective ways to move wealth to the next generation over time.
The Lifetime Exemption
Gifts above the annual exclusion aren't necessarily taxed; instead, they reduce your lifetime exemption, the same exemption that applies at death. In other words, the estate tax and gift tax share one unified exemption. Larger lifetime gifts simply use up part of the amount you can pass tax-free at death.
Gifts That Don't Count at All
Some transfers are never treated as taxable gifts, no matter the amount:
- Tuition paid directly to an educational institution
- Medical expenses paid directly to a provider
- Gifts to your U.S. citizen spouse
- Gifts to qualified charities
Paying a grandchild's tuition or a family member's medical bills directly, rather than giving them the money, is a valuable and often overlooked planning technique.
Portability Between Spouses
When one spouse dies, any unused portion of their exemption can, in many cases, be transferred to the surviving spouse, a feature known as portability. This lets a couple make full use of both exemptions. Portability is not automatic, however; it must be elected by filing a federal estate tax return after the first spouse's death, even when no tax is owed. Missing that filing can forfeit a valuable benefit, which is why surviving spouses should get advice even when it seems like "nothing needs to be done."
Strategies to Reduce Estate Tax Exposure
For families who are above the exemption, or expect to be, a number of tools can reduce or defer estate tax:
- Annual exclusion gifting, moving wealth out of your estate a little each year
- Irrevocable trusts, which can remove assets and their future appreciation from your taxable estate
- Irrevocable life insurance trusts, keeping large policy proceeds outside your estate
- Charitable giving, through outright gifts or charitable trusts that also provide income or tax benefits
- Family entities and valuation planning for business and investment assets
- Generation-skipping planning, for families who want to benefit grandchildren and beyond
These strategies work best when put in place well in advance, and many are far more effective while exemptions are high.
Why This Matters Even If You're Under the Exemption
Even if your estate is comfortably below the threshold today, there are good reasons to pay attention:
- The law changes. Exemption amounts have moved dramatically over the years and can be reduced by future legislation.
- Estates grow. A home, retirement accounts, a business, and life insurance can add up faster than you'd expect, especially over decades.
- Portability requires action. A surviving spouse may need to file to preserve a deceased spouse's exemption.
- Income tax planning matters too. Coordinating your plan can help your heirs receive a stepped-up cost basis, potentially saving significant capital gains tax when they later sell inherited assets.
Talk to a Texas Estate and Tax Planning Attorney
The federal estate and gift tax rules are generous right now, but "generous" and "permanent" are not the same thing, and the details, portability elections, what counts in your estate, how gifts interact with the lifetime exemption, trip up families every year. Thoughtful planning can reduce or eliminate estate tax exposure and make sure nothing valuable is left on the table.
If you'd like to understand how these rules apply to your situation, or you're building an estate that may one day cross the exemption, reach out to Olive Branch Counsel, PLLC to schedule a consultation. We'll help you plan with today's rules in mind and stay ready for tomorrow's. This article is general information, not tax or legal advice; please confirm current figures and strategies with us before acting.