Managing Attorney
The federal estate tax exemption is scheduled to drop significantly after 2025, reverting to pre-2018 levels unless Congress acts. For high-net-worth individuals and families in Houston, this change could result in a substantial increase in federal estate tax liability. While Texas does not impose a state estate or inheritance tax, the looming federal changes make it critical to act now. This article outlines key estate tax planning strategies, such as gifting, trust structures, and tax coordination, that Houston residents should consider implementing before the exemption decreases in 2026. Our Houston estate planning attorneys can help.
What Will Happen to the Federal Estate Tax in 2026?
The current federal estate tax exemption is $13.99 million per individual for 2025 ($27.98 million for married couples using the portability provision). This elevated threshold allows many families to transfer wealth without triggering federal estate tax, which applies at a top rate of 40% on amounts exceeding the exemption.
Under the Tax Cuts and Jobs Act (TCJA) of 2017, this elevated exemption was set to sunset at the end of 2025. However, Congress passed The One Big Beautiful Bill Act (OBBBA), which was signed into law on July 4, 2025. The OBBBA makes the federal estate and gift tax exemption permanently $15 million per individual beginning in 2026.
Although Texas does not levy a state estate or inheritance tax, Houston residents with significant assets, such as real estate, business interests, or investment portfolios, should not overlook the impact of federal estate taxes. Taking action now can help preserve more wealth for your heirs.
How Can Gifting Reduce Estate Tax Exposure?
Lifetime gifting remains one of the most effective tools for reducing the size of your taxable estate. The annual gift tax exclusion allows you to give up to $18,000 per recipient in 2024 and $19,000 per recipient in 2025 without using any portion of your lifetime exemption.
By making strategic gifts now, you can:
- Transfer wealth to heirs tax-free under the annual exclusion
- Use your full lifetime exemption strategically
- Reduce the overall size of your taxable estate, lowering future estate tax exposure
Many Houston families are also utilizing family limited partnerships (FLPs) to transfer business or real estate interests at discounted values. These valuation discounts can further reduce the taxable value of transferred assets.
However, gifting strategies must be carefully planned. Improperly structured gifts can trigger gift tax or result in unintended loss of control. Consulting with an experienced estate planning attorney ensures your approach complies with IRS rules and supports your long-term financial goals.
What Types of Trusts Help with Estate Tax Planning?
Trusts offer flexible and effective tools for managing estate tax exposure while maintaining control over assets. As federal tax laws remain uncertain, trust-based strategies can provide both tax efficiency and adaptability.
- Grantor Retained Annuity Trusts (GRATs): Allows you to transfer appreciating assets while retaining an income stream. If structured correctly, the appreciation passes to beneficiaries with minimal estate tax.
- Irrevocable Life Insurance Trusts (ILITs): Excludes life insurance proceeds from your taxable estate, providing liquidity to pay estate taxes without increasing the estate’s value.
- Spousal Lifetime Access Trusts (SLATs): Enables you to gift assets to a trust for your spouse’s benefit, preserving indirect access to funds while reducing your taxable estate.
For Houston residents who own real estate or closely held businesses, liquidity planning is also essential. These assets can be difficult to convert to cash quickly. Structuring ownership through trusts or partnerships can help ensure funds are available to cover estate taxes when needed.
Why Coordinate Estate Planning with Income and Capital Gains Tax Strategies?
Estate tax planning should be integrated with broader tax considerations, including income and capital gains taxes. This is especially important if federal rules around the step-up in basis change in the future.
Currently, inherited assets receive a step-up in basis to their fair market value at the time of death, which can significantly reduce capital gains tax if the assets are later sold. If this rule is modified or eliminated, heirs could face higher tax burdens on appreciated assets.
To prepare, consider:
- Reviewing how your assets are titled and held
- Using charitable giving strategies, such as donor-advised funds, to offset capital gains
- Aligning your estate plan with your overall tax strategy
A coordinated approach can help you preserve more wealth and reduce the tax impact on your beneficiaries.
What Are Common Estate Tax Planning Misconceptions?
Misconceptions about estate tax planning can lead to costly mistakes. Here are some common misunderstandings:
“Texas Doesn’t Have An Estate Tax, So I Don’t Need To Plan.”
While Texas has no state estate tax, federal estate tax still applies and can be substantial.
“Only The Ultra-Wealthy Need Estate Planning.”
Even with a permanent exemption, many families could be affected by estate tax.
“Trusts Eliminate All Taxes.”
Trusts are valuable tools, but they must be properly structured to avoid unintended tax consequences.
Discussing these issues with a qualified estate planning attorney can help you avoid errors and make informed decisions.
Consult a Houston Estate Tax Planning Attorney Before 2026
Now is the time to implement a forward-looking estate plan. Capstone Legal Strategies, PLLC works with Houston families and business owners to develop customized strategies that protect wealth and minimize tax exposure. Contact our office today to schedule a consultation and take advantage of current tax laws before they change.