Texas does not currently have an estate tax, but there is currently a federal estate tax. The Bush tax cuts set up an exemption amount scale that gradually increased the minimum value of estates that are subject to the federal estate tax from $675,000 in 2001 to $3.5 million in 2009, while also decreasing the rate of taxation from 55% in 2001 to 45% in 2009. By law, the estate tax was eliminated in 2010. With the enactment of Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Congress "reinstituted" the estate tax and set the rate at 35% and the exemption at $5 million, adjusted for inflation, for a period of two years, sunsetting at the end of 2012. This means that if Congress does not enact any further legislation, on January 1, 2013 the estate tax rate is set to climb as high as 55%, one of the highest in the world economy, while the exemption dropping to just $1 million. This could monumentally increase the number of Americans who would be subject to this tax.
What does this mean for you? Well, if your gross estate, which includes most life insurance and retirement policies, exceeds $1 million, you should contact an estate planning lawyer to learn about several options that can help eliminate or substantially reduce any estate tax which would otherwise be payable to the IRS. You may be thinking to yourself: "I don't have an estate worth $1 million," but you may be surprised at what the IRS includes when calculating the value of your gross estate. With an estate tax rate reaching as high as 55%, this is an issue that should not be ignored.