Before we get into the residential weeds, let’s talk about estate tax exemptions. For those of us lucky enough to be Texas residents, there is no need to worry about a Texas estate tax because there isn’t one. We don’t have inheritance tax, either. (Note: You might drop that nugget into your next conversation with a New Jersey resident. They are subject to a 16% inheritance tax.)
Federal Estate Tax
However, all residents of Texas, and every other state in the Union, must still worry about the federal estate tax, which ranges from 18% to 40%. In the last decade, most people have not been hit with the federal estate tax because there has been a healthy federal estate tax exemption; in 2023 the exemption was $12.92 million per person. Because the exemption is portable between spouses, a married couple could exempt a total of $25.84 million. Not many households have assets that exceed the exemption level.
The good news is that in 2024 the exemption increases to $13.61 million per person, or $27.22 million per couple. The bad news is that in 2026, unless Congress acts, the exemption is going to be cut in half. That will catch a lot more people.
Here’s a grand idea. Write, email, and call your Representative and let them know how you feel about paying a 40% estate tax to the federal government. They are your voice in Congress. Demand that they represent you.
Homestead Rights Language In Your Will
Moving from the soapbox to the front stoop, let’s talk about planning issues regarding your home for when you or your spouse dies.
A surviving spouse generally has a statutory right to continue to live in the homestead. That right does not extend to keeping the decedent’s individually owned furniture, vehicles, and personal property.
Imagine this scenario. Your spouse has been married before and has 2 children from the prior marriage. You sold everything and moved into your spouse’s house. You and your spouse make wills, where your spouse gives you the house but leaves everything else to their children. Your spouse dies.
What do you think is going to be left in the house when you return home from the funeral? Maybe your clothes and toothbrush? You may be able to claw some of it back, but at what cost?
What if your spouse anticipates this issue, and leaves to you “my primary residence and the contents of my residence”? This would have the unhappy result of conveying to you the spouse’s family heirlooms, photos of your spouse’s kids and other mementos, leaving the children embittered and resentful.
Avoiding Estate Asset Expenses
Apportioning federal estate taxes is another big issue. Unless there are contrary provisions in the will or trust, estate taxes are apportioned “equitably” among each person interested in your spouse’s estate. The law is complex, but the bottom line is that if your spouse leaves a non-cash asset, like real estate, to a beneficiary, then that person could bear a share of the estate taxes. Those could be difficult to pay without selling the real estate.
Residences always come with expenses like maintenance, property taxes and insurance. Who is on the hook to pay these while your spouse’s probate is pending?
Your spouse’s probate estate. If there is not enough liquidity in the estate, then assets will need to be sold to pay the residential expenses.
These are default outcomes, specified by statute. You and your spouse can draft around them. Detailed wording in the will is the key to avoiding disaster.
Hammerle Finley Can Help With Your Estate Planning Needs
If you’re looking for legal assistance, schedule a consultation with one of our experienced attorneys to discuss your options.
Virginia Hammerle is an accredited estate planner and represents clients in estate planning, probate, guardianship and contested litigation. She may be reached at legaltalktexas@hammerle.com. This column contains general information only and does not constitute legal advice.
