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Will inheriting from a Texas estate trigger taxes for out-of-state beneficiaries?

On Behalf of | Sep 13, 2023 | Estate Planning

When people think of older adults moving someplace warm and comfortable for retirement, they might picture Florida or perhaps Arizona. However, the Lone Star State also hosts a significant number of older adults who permanently relocate to Texas or spend the winter months in the state to avoid the harsh winters farther north.

Whether – before they passed away – someone retired and moved to Texas or lived in Texas but saw their children leave the state for opportunities elsewhere, their estate’s multi-state probate scenario will result in more challenges than the average estate administration situation. The executor or personal representative of the estate may need to travel, and distributing assets across state lines can generate unique practical concerns for both beneficiaries and the person managing the administration process. Additionally, out-of-state beneficiaries of an estate based in Texas may have worry that they’ll incur liability for inheritance taxes.

Texas does not collect an inheritance tax

Regardless of whether the beneficiaries of an estate live in Texas or in another state, they will not have to worry about taxes due to the state of Texas. There are no inheritance taxes collected in Texas, just as the state does not levy a tax on the estate itself based on its value.

However, there could be some taxes due from beneficiaries depending on how they handle the assets that they inherit. Particularly in scenarios where beneficiaries choose to liquidate certain assets, like real property in Texas, there could be capital gains taxes triggered by that transaction that they will need to cover. Those will be federal taxes, as opposed to Texas state taxes. There will be no need to file any additional tax paperwork with the state of Texas related to one’s inheritance.

Interstate administration creates unique challenges

The personal representative of a Texas estate seeking to avoid personal liability for taxes will need to ensure they comply with state laws while simultaneously providing the financial information that beneficiaries will need to fulfill their responsibilities.

Ideally, any testator will have planned carefully to minimize tax obligations. Their planning could help reduce the possibility of both federal estate taxes and capital gains taxes owed by the individual beneficiaries of the estate.

Learning more about the tax requirements for Texas estate administration can be a useful step for those planning an estate, those administering an estate and even those hoping to inherit from one.

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