Texas Estate Planning Considerations
Community Property State
There are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Alaska is an opt-in community property state that gives both parties the option to make their property community property.
Domicile is a person’s legal permanent residence and may not be where they currently live. For those in the military, people who have homes in several states, or those who have moved frequently, figuring out which state is their proper domicile is critical.
IRS Publication 555 provides guidance and states that generally, community property is property:
- That you, your spouse, or both acquire during your marriage while you and your spouse are domiciled in a community property state.
- That you and your spouse agreed to convert from separate to community property.
- That cannot be identified as separate property.
Guidance is also given regarding what is considered separate property:
- Property that you or your spouse owned separately before your marriage.
- Money earned while domiciled in a noncommunity property state.
- Property that you or your spouse received separately as a gift or inheritance during your marriage.
- Property that you or your spouse bought with separate funds or acquired in exchange for the separate property during your marriage.
- Property that you and your spouse converted from community property to separate property through an agreement valid under state law.
- The part of property bought with separate funds was purchased with community funds and amount with separate funds.
A premarital agreement is an agreement that may change the result of the property division.
Last Will and Testament and Trusts
The minimum age of a person competent to make a will is 18. Someone younger than 18 can decide if they are married, a member of the armed forces, or a merchant marine.
The number of witnesses necessary to execute a will is two.
The custodial arrangement terminates when:
- The minor child reaches age 21 for custodial transfers made by irrevocable lifetime gift, will, trust, or exercise of a power of appointment.
- The minor child reaches age 18 concerning other custodial transfers.
- The minor child dies.
Dying without a Last Will, the Texas Laws of Intestacy.
The estate goes to the surviving spouse, as follows:
- If there is no surviving child or other descendants, —100% of community and separate property, plus 50% of the decedent’s land (with the other 50% inherited according to the rules of descent described below, unless there is no surviving parent, sibling or descendant, in which case the spouse takes the entire estate)
- If all surviving children of the decedent are also children of the spouse, —100% of the community property
- If a surviving child is not also a child of the spouse, —50% of the community property (with the other 50% passing to the decedent’s children or descendants according to the rules of descent as described below)
- If the decedent has one or more surviving children or a descendant of a child—one‐third of the separate property, plus a life estate in one‐third of the decedent’s land (with both the two-thirds portion of the separate property and the remainder of the land at the expiration of the life estate passing to the decedent’s children or descendants according to the rules of descent as described below)
If there is no surviving spouse:
- 100% to children and the children’s descendants (see Tex. Estates §201.101)
- If there is no surviving spouse, child, or descendant:
- 100% to parents equally, if both survive
If no surviving spouse, child, or descendant and only one parent survive:
- 50% to the surviving parent and 50% to siblings and their descendants (see Tex. Estates §201.101), unless no siblings or their respective descendants survive, in which case the one surviving parent takes 100%
- If there is no surviving spouse, child, descendant, or parent:
- 100% to siblings and their descendants (see Tex. Estates §201.101)
If none of the above:
- Intestacy laws outline further distribution steps to the level of maternal and paternal kindred, then grandparents and descendants. See Tex. Estates §201.001(f), (g), (h).
- If no legally described recipient can be found, estate assets go to the state of Texas.
Properly Transferring Property Through Texas Trust Laws
There are a variety of trust types that people can use under Texas trust laws. Most trusts executed in the Lone Star State need to follow specific creation requirements when they are made. The following table outlines the specifics of Texas trust laws.
Texas Statutes – Subtitle B: Texas Trust Code: Creation, Operation, And Termination Of Trusts
Under Texas trust laws, the following are required for a valid trust to be formed:
- The Settlor must have a present intent to create a trust.
- The Settlor must have the capacity to convey assets to the trust.
- The trust must comply with the Statute of Frauds.
- The trust must have a legal purpose.
- The Settlor must identify the property covered by the trust and place it in the trust for the beneficiary’s benefit.
- The trust must have a Trustee who holds the property’s legal title to benefit the trust’s beneficiaries.
- The trust must have ascertainable beneficiaries. If the Settlor does not name the beneficiaries with sufficient certainty, the trust will fail.
- The trust may not violate the Rule Against Perpetuities.
Methods of Creating Trusts
A trust may be created by:
- A property owner’s declaration that the owner holds the property as trustee for another person;
- A property owner’s inter vivos transfer of the property to another person as trustee for the transferor or a third person;
- A property owner’s testamentary transfer to another person as trustee for a third person;
- An appointment under a power of appointment to another person as trustee for the donee of the power or a third person; or
- A promise to another person whose rights under the pledge is to be held in trust for a third person.
Trust for Care of Animals
A trust may be created to provide for an animal’s care alive during the Settlor’s lifetime. The trust terminates on the death of the last surviving animal named in the trust.
Texas follows the Revised Uniform Fiduciary Access to Digital Assets Act to ensure that testators can retain control of their digital property and plan for its ultimate disposition.
Texas does not impose an inheritance tax.
Credit Estate Tax
Texas imposes an estate tax equal to the maximum credit allowed under the federal tax code for paid state estate and inheritance taxes under I.R.C. Sec. 2011. However, the current federal tax code does not permit a credit for paid state estate or inheritance taxes. Therefore, there is no credit estate tax in effect at this time.
Generation-Skipping Transfer Tax (G.S.T. Tax)
Texas imposes a G.S.T. tax equal to the maximum credit allowed under I.R.C. Sec. 2604 for paid state G.S.T. tax. However, the current federal tax code does not permit a credit for paid state G.S.T. tax. Therefore, there is no current G.S.T. tax.
Texas does not impose a gift tax.