Estate taxes can be a confusing aspect of wealth transfer, particularly because the rules don’t just vary at the federal level—they can also differ drastically depending on where you live.
If you’re planning your estate or managing the estate of a loved one, understanding the difference between state-level estate taxes and the federal estate tax is critical to ensuring your legacy is preserved and your family is protected.
In Texas, you’re in one of the more favorable jurisdictions when it comes to estate tax burdens. But if you own property in other states, have family members in higher-tax jurisdictions, or are planning a move, those considerations become even more important.
Let’s break it down.
Federal Estate Tax: A High Threshold with Broad Reach
The federal estate tax is administered by the Internal Revenue Service (IRS) and applies to estates that exceed a certain threshold at the time of the owner’s death. As of 2025, under the post-election Trump administration, the federal estate tax exemption remains elevated—indexed for inflation but set to sunset back to pre-2018 levels in 2026 unless legislative action is taken.
- 2025 Exemption: Roughly $13.6 million per individual (or about $27.2 million per couple)
- Top federal estate tax rate: 40%
If your estate falls under that threshold, your estate owes no federal estate tax. If your estate exceeds it, only the amount above the exemption is taxed.
Keep in mind: even if you think your estate is under the threshold now, this exemption is set to drop significantly in 2026 unless Congress renews the current tax cuts. In that scenario, many more estates could become taxable.
Texas and State Estate Taxes: No Worries Here—For Now
Texas does not have a state estate tax or an inheritance tax. That makes it one of the more favorable states for wealth preservation and transfer. However, not all states are as tax-friendly.
Several states—including New York, Massachusetts, Oregon, Washington, and Minnesota—still impose their own estate taxes. Some of these states have exemptions far below the federal level. For example:
- Massachusetts: $2 million estate tax exemption
- New York: ~ $6.9 million exemption
- Oregon: $1 million exemption
In addition to estate taxes, a few states (like Nebraska, Iowa, Pennsylvania, and Kentucky) still impose inheritance taxes, which are based on the recipient’s relationship to the deceased.
Why It Matters for Texans
Even if you live in Texas full-time, your estate may still be subject to state estate tax if:
- You own real estate in a state with an estate tax
- You have business interests in a higher-tax state
- You hold significant assets like vacation homes or rental properties in states with estate or inheritance tax laws
- You are a dual resident or split your time between Texas and another state
This is why multi-state estate planning is so important. Simply living in Texas doesn’t guarantee your estate will avoid state taxes.
Planning Strategies to Reduce State or Federal Estate Taxes
There are a variety of ways to plan around both federal and state estate taxes. Here are a few commonly used strategies:
- Annual Gift Exclusion: In 2025, you can gift up to $18,000 per person per year (or $36,000 per couple) without eating into your lifetime exemption.
- Irrevocable Trusts: Assets placed into certain types of irrevocable trusts may be removed from your taxable estate.
- Family Limited Partnerships: Useful for transferring business interests or investment assets while maintaining control.
- Charitable Giving: Donating assets to charities or setting up donor-advised funds can reduce your taxable estate.
- Portability Planning: Married couples can make use of both spouses’ federal exemptions, but only if proper elections are made on time.
It’s also essential to have your estate documents reviewed regularly—especially if you’ve recently moved, inherited property, or acquired real estate outside of Texas.
How to Navigate State vs. Federal Estate Tax When You Own Property in Multiple States
If your estate includes multiple properties in different states, you may want to:
- Consult with an estate planner in each jurisdiction
- Use revocable living trusts or LLCs to consolidate real estate holdings
- Consider domicile planning—which includes aligning your legal domicile with your tax-friendly state
- Include clear documentation in your estate plan about which property is primary, and which are ancillary
The more complex your asset map, the more important it becomes to tailor your plan to the tax laws in each location.
The Bottom Line: Think Nationally, Plan Locally
While Texas offers an estate-tax-free advantage, that doesn’t mean Texans are in the clear—especially those with high net worth portfolios, multi-state assets, or dual residences. The federal estate tax is still a major consideration, and out-of-state assets can drag your estate into less favorable tax jurisdictions.
By staying informed about both federal and state-level estate taxes, and by working closely with legal and financial professionals, you can ensure your wealth is transferred smoothly—and with minimal tax disruption.
Legal Disclaimer
This blog is intended for educational purposes only and does not constitute legal advice. Estate laws and tax regulations vary by state and can change frequently. For guidance tailored to your unique situation, consult with a qualified estate planning attorney licensed in your state.
Peabody Law – Serving Southlake and the Surrounding Area
Peabody Law proudly serves clients throughout Southlake, TX, as well as Westlake, Trophy Club, Keller, Colleyville, Grapevine, and surrounding communities. Whether you’re navigating multi-state property concerns, tax exposure, or future legacy planning, our firm can help.