| Dear Mr. Premack: In your
newspaper column, can you give us some information concerning Texas laws
on estate and inheritance taxes? You have written a lot about trusts to
reduce Federal estate taxes, but I don't recall anything on Texas'
regulations. Thank you -- T.E.C.
As you know, the US government imposes an "estate tax" on
assets that exceed $625,000 in value when an individual dies. As of
January 1, 1999 the exempt amount increases to $650,000 for each
individual. In addition, the State of Texas imposes an "inheritance
tax". These two tax systems are dependent upon each other when they
impose a tax burden.
A bit of legal history: before 1983, Texas law imposed a "basic
inheritance tax" on each estate. The amount of tax depended on the
survivor's relationship to the heir. A tax-free allowance was granted,
then each heir paid up to 20% of the balance as Texas inheritance tax.
Texas also imposed an "additional inheritance tax" to grab
some of the funds you would otherwise save under section 2011 of the
Internal Revenue Code. That section gives an estate a credit against US
estate tax for the amount of Texas inheritance tax being paid. Texas
grabbed 80% of that credit as its additional tax.
Shortly later, both the US and Texas tax codes were rewritten. The
updated Texas law completely eliminated the "basic inheritance
tax," and converted the "additional inheritance tax" into
its primary tax. The US tax code preserved its section 2011 tax credit,
and Texas inheritance tax was set at 100% of the section 2011 credit.
As a result, if a US Estate Tax Return does not have
to be filed, then Texas does not require a Inheritance Tax Return
either. But if the estate is large enough to require a US Estate Tax
Return, then the Executor must, within 9 months of the date of death,
file a Texas Inheritance Tax Return and must pay any taxes due. The
Texas Comptroller can grant extensions for various reasons.
As a Texas Resident, your taxable estate includes:
-
Your real property and oil and gas
interests located in Texas whether held in trust or
individually. Real property in a living trust is not taxed if
the real property is located outside of Texas;
-
Your tangible personal property located in
Texas; and
-
All your intangible personal property
located in or out of Texas. This includes promissory notes,
stocks, bonds, CDs, and other assets.
If your estate is valued at $600,000 then you are exempt from both
the US and Texas taxes. If your estate is $700,000 then your estate will
owe both taxes. The preliminary US estate tax on $700,000 would be
$27,750 in 1998.
To calculate the section 2011 credit, you first deduct $60,000 from
the overall estate as mandated by law – in this case, that would leave
$640,000 taxable. The tax due to Texas would be $18,000 (which you would
have paid to the US otherwise as part of the preliminary estate tax).
This reduces the final US estate tax to $9,750. The figures are
different for other size estates, but this gives you an idea of how the
system works. |
