Federal Estate Tax and Texas Estates: What You Need to Know
Federal estate tax applies to large Texas estates. Learn the 2025–2026 exemption amounts, portability election, what assets are included, and strategies to minimize estate taxes.
Most Texas families will never owe federal estate tax. The exemption is high enough that the vast majority of estates pass to heirs completely tax-free. But for estates that do approach or exceed the threshold, the tax can be substantial — the top rate is 40%. And even for smaller estates, one filing decision can save a surviving spouse millions of dollars down the road.
This guide covers the federal estate tax as it applies to Texas estates, including current exemption amounts, the portability election, what gets counted in the taxable estate, and planning strategies worth knowing about.
Texas Has No State Estate Tax
Start with the good news: Texas imposes no state estate tax and no inheritance tax. Beneficiaries pay no Texas tax on what they receive. The only estate-level tax concern for Texas families is the federal estate tax. Many states (Massachusetts, Oregon, Washington, and others) layer a state estate tax on top of the federal one — Texas does not.
The Federal Estate Tax Exemption
The federal estate tax applies only to estates whose gross value exceeds the basic exclusion amount — the exemption threshold. For 2025, the exemption is $13.99 million per person. For 2026, it rises to $15 million per person.
A married couple can effectively shelter twice that amount. Combined, they have up to $30 million in 2026 that can pass free of federal estate tax, assuming proper planning (see Portability, below).
Amounts above the exemption are taxed on a graduated schedule that tops out at 40%.
For reference, here are the recent exemption amounts:
| Year | Per Person Exemption |
|---|---|
| 2024 | $13.61 million |
| 2025 | $13.99 million |
| 2026 | $15.00 million |
What Is Included in the Taxable Estate
The "gross estate" for federal estate tax purposes is broader than most people expect. It is not just the assets listed in a will or passing through probate. It includes:
- All assets titled in the decedent's name
- Life insurance the decedent owned (even if the beneficiary is someone else — ownership, not beneficiary designation, determines inclusion)
- Retirement accounts (IRAs, 401(k)s, 403(b)s)
- Jointly held property (the full value of joint tenancy property minus any amount contributed by the surviving joint owner)
- Property in a revocable living trust
- Certain gifts made within 3 years of death (gifts of life insurance, in particular)
- Powers of appointment the decedent held
- The decedent's half of community property (not the surviving spouse's half)
The gross estate can be significantly larger than the probate estate. Someone with a $2 million IRA, $2 million in life insurance, a $3 million home, and investment accounts does not have a small estate just because most assets will pass by beneficiary designation.
Deductions That Reduce the Taxable Estate
Several large deductions can reduce the gross estate to zero or near zero even for wealthy families:
Unlimited Marital Deduction. Property passing outright to a surviving spouse who is a U.S. citizen is fully deductible — no limit. This is why most married couples owe no estate tax when the first spouse dies: everything passes to the survivor tax-free. The tax is deferred, not eliminated — it applies when the second spouse dies.
Charitable Deduction. Property passing to qualified charitable organizations is fully deductible.
Debts and Expenses. Funeral costs, estate administration costs, and the decedent's outstanding debts reduce the taxable estate.
Portability: The Election That Can Save Millions
When the first spouse in a married couple dies, their unused federal estate tax exemption does not automatically disappear. Under the portability election, the surviving spouse can claim the deceased spouse's unused exemption (called the Deceased Spousal Unused Exclusion, or DSUE) and add it to their own.
Example: Husband dies in 2026 with a $4 million estate, using $4 million of his $15 million exemption. His $11 million unused exemption can be transferred to his wife. She now has her own $15 million exemption plus his $11 million — a combined $26 million shield against estate tax.
Critical requirement: Portability is not automatic. The executor must file Form 706 (the federal estate tax return) within 9 months of the date of death (or 15 months with an extension) to make the portability election. This filing is required even if no estate tax is owed — even if the estate is far below the exemption threshold.
Many families skip Form 706 because "we don't owe any tax." That decision can cost the surviving spouse millions if their combined estate later exceeds the exemption. Filing Form 706 solely for portability is a straightforward step that attorneys can handle relatively inexpensively.
When Form 706 Must Be Filed
File Form 706 if:
- The gross estate exceeds the applicable exemption amount (tax is owed)
- You want to make the portability election (to preserve the deceased spouse's unused exemption)
- The estate has generation-skipping transfers
Due date: 9 months after the date of death Extension: Form 4768 grants an additional 6 months (15 months total)
If the estate owes tax and cannot pay in full by the deadline, file on time anyway and arrange a payment plan with the IRS. Penalties for late filing exceed penalties for late payment.
The Current Law: $15 Million in 2026
This is different from what many older estate planning documents and guides describe. A sunset provision in the 2017 tax law was widely expected to cut the exemption roughly in half beginning January 1, 2026 — back to approximately $7 million. That sunset did not take effect. Under current federal law, the exemption is $15 million per person in 2026, indexed for inflation in future years.
If you have an estate plan that was drafted with the sunset in mind — including irrevocable trusts or gifting programs designed to move assets out of the estate before the exemption dropped — review it with your estate planning attorney. The strategy may no longer be necessary, or may even be counterproductive given the step-up in basis rules.
Step-Up in Basis: The Tax Benefit of Inheriting
One of the most significant tax advantages of inheriting assets (as opposed to receiving them as gifts) is the step-up in basis. Assets included in a taxable estate receive a new tax basis equal to their fair market value on the date of death. Heirs who later sell those assets pay capital gains tax only on appreciation that occurred after the date of death — not on gains that accrued during the deceased's lifetime.
In Texas, a community property bonus applies: both halves of community property receive a step-up when the first spouse dies, not just the deceased spouse's half. This is a significant advantage over jointly held property in non-community-property states.
See our Texas step-up in basis guide for a full explanation and examples.
Strategies to Reduce Federal Estate Tax
Most Texas families do not need aggressive tax planning. But if your estate is large enough to be concerned about federal estate tax, common strategies include:
Annual Gifting. The annual gift tax exclusion for 2025 and 2026 is $19,000 per recipient. You can give up to $19,000 to any number of people each year without it counting against your lifetime exemption. A couple can give $38,000 per recipient per year. Over time, annual gifting can systematically reduce a taxable estate.
Irrevocable Trusts. Certain types of irrevocable trusts (like ILITs for life insurance, or SLATs for spousal benefit) can remove assets from the taxable estate while still benefiting the family. These require careful drafting and should only be done with experienced estate planning counsel.
Charitable Giving. Charitable remainder trusts, donor-advised funds, and direct bequests to charity reduce the taxable estate and may provide income tax benefits during life.
529 Plans and Education Gifting. Contributions to 529 education savings plans are eligible for a special "superfunding" election — you can contribute five years' worth of annual exclusion gifts at once ($95,000 per beneficiary in 2025) without gift tax implications.
Life Insurance in an Irrevocable Trust. If life insurance is held in an irrevocable life insurance trust (ILIT) rather than owned by the decedent directly, the death benefit stays outside the taxable estate.
What About Gifts During Life?
Gifts above the annual exclusion amount ($19,000 per recipient in 2025–2026) use up a portion of the lifetime exemption. Taxable gifts made during life are added back to the estate for estate tax calculation purposes. However, the increase in the asset's value after the gift is made — and after taxes have been paid on the gift — does stay outside the estate.
The interplay between gift taxes, estate taxes, and capital gains taxes is complex. For large gifts, consult a tax advisor before acting.
Frequently Asked Questions
Does my estate owe federal estate tax?
If the gross value of your estate — including life insurance, retirement accounts, and your half of community property — is below $15 million (2026), no federal estate tax applies. The vast majority of Texas estates are well below this threshold.
Should we file Form 706 even if we don't owe tax?
Yes, if you want to preserve portability. Filing is the only way to transfer the deceased spouse's unused exemption to the survivor. Skipping the filing forfeits that benefit permanently.
What is the estate tax rate?
The top federal estate tax rate is 40%, applied on a graduated schedule to amounts above the exemption. The effective rate on the entire estate is always lower than 40% because the exemption covers the first $15 million.
Can a surviving spouse claim portability on their own?
No. Portability must be elected by filing Form 706 for the first spouse who died. The surviving spouse cannot unilaterally elect portability after the filing deadline passes.
Related Guides
Sources:
- "Estate and Gift Taxes," Internal Revenue Service, 2025, https://www.irs.gov/businesses/small-businesses-self-employed/estate-and-gift-taxes
- "About Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return," IRS, 2025, https://www.irs.gov/forms-pubs/about-form-706
- "IRS Publication 559, Survivors, Executors, and Administrators," IRS, 2025, https://www.irs.gov/pub/irs-pdf/p559.pdf
- "Texas Comptroller of Public Accounts — Taxes," https://comptroller.texas.gov/taxes/
This guide reflects federal estate tax law as of early 2026. Tax law changes frequently; consult a qualified tax advisor or estate planning attorney before making planning decisions.