Texas Estate Planning Guide

Did you know estate planning laws aren’t the same everywhere? You probably think mainly about the federal government’s role when it comes to estate planning – specifically, the estate tax. But most of the rules that dictate what happens to your money and property when you’re gone are at the state level. 

Texas, like other states, has its own nuances when it comes to estate planning. For example, there’s no estate tax, but Texas’ community property laws can complicate estate planning. It is also vital to obtain the correct documentation while estate planning to create a smooth process for you and your family.

So, you can see how critical it is to put your estate planning in the context of the state’s laws where you live. Once you’ve learned why it’s important to have an estate plan, here’s what to consider more specifically when estate planning in Texas. 

HOW TEXAS ESTATE LAWS AFFECT YOUR PLANNING STRATEGY

NO ESTATE TAX

Most people know about the estate tax at the federal level, which applies to large estates. But some states also have their own estate tax (which is assessed against the value of the estate and removed before inheritors receive anything) or an inheritance tax (which is assessed against the inheritance after it’s received). One state even has both. 

But there’s great news for Texans ... Texas doesn’t have an estate or inheritance tax, although of course, the federal tax may still apply.  

COMMUNITY PROPERTY LAWS

Texas is a community property state – assets acquired during the marriage, including real estate, bank accounts and investment accounts are considered to be owned equally by both spouses, regardless of how the asset is titled.  This means that one-half of community property must pass to the surviving spouse, regardless of the terms of a last will and testament.

Gifts and inheritances received by one spouse during the marriage are generally considered to be that spouse’s separate property.  Assets acquired prior to the marriage are also generally considered to be separate property, although post-marital earnings may not be.

NO DIY PROBATE

Probate is the validation of the decedent’s Last Will and Testament and the formal appointment of the executor.  The probate process begins with the filing of a petition with the Probate Court located in the decedent’s county of residence. 

In most cases, Texas law requires that an attorney be hired to file the probate petition.

KEY TEXAS ESTATE PLANNING DOCUMENTS

LAST WILL AND TESTAMENT

When people consider their estate planning, they often first think about the Last Will and Testament. This is a legal document that allows you to name a guardian for your minor children, describe how your assets are to be distributed at your passing and name the person who is responsible for administering your estate in accordance with the terms of your will. 

In the absence of a will, you will be considered to have died “intestate” and the laws of the state where you reside will determine who inherits your assets. 

In Texas, a valid will must be: 

• In written form
• Made by a competent person who is at least 18 years of age (or an emancipated minor)
• Signed in the presence of at least two witnesses, all of whom must also sign in the presence of the testator and each other

In Texas, a Last Will and Testament does not have to be notarized to be valid.  However, it can make the future probate process easier.

REVOCABLE LIVING TRUST

A revocable living trust (sometimes referred to as simply a “revocable trust” or a “living trust”) is an estate planning document that serves to both manage your assets during your lifetime and act as a testamentary substitute when you pass away. This document is called a revocable trust because you have the right to change its terms or even revoke the trust altogether – just like any other estate planning document. It is only at your passing that the trust becomes unamendable or irrevocable. 

At your passing, your revocable living trust will work in tandem with your last will and testament to effectuate your wealth transfer goals. 

One of the benefits of a revocable trust is that assets held inside the trust prior to your passing are considered a non-probate asset, meaning that an executor does not need to be appointed by a probate court before your fiduciary has access to cash and other assets within your revocable living trust.   

POWER OF ATTORNEY

With a durable power of attorney, you give one or more loved ones or trusted individuals the right to act on your behalf while you are alive. This allows them to manage your investment and bank accounts, pay your bills, file an income tax return and even cancel a subscription service. This is an immense responsibility, so the person you choose should be someone you fully trust. 

In the absence of a durable power of attorney, no one (including spouses) has the right to make financial and other non-health care decisions on your behalf if you were to become incapacitated. 

Some people prefer a “springing” power of attorney that only becomes effective under certain conditions (most commonly, upon a physician’s certification of incapacitation). While Texas allows springing powers of attorney, not every state does, which is important to keep in mind if you plan on relocating.

MEDICAL POWER OF ATTORNEY

What if you suffered a severe injury or illness and cannot make health care decisions for yourself, even if just for a temporary period of time? Who would you like to make important decisions for you?

Texas allows you to name a health care agent to make health care decisions for you, if you are unable to do so yourself. The medical power of attorney must be completed while the individual is of sound mind and requires two witnesses to the signing, one of whom cannot be a medical provider, employee, spouse or family member of the individual.

LIVING WILL

A living will (which is called an advance directive in some other states) is another type of health care directive that allows you to leave instructions for your end-of-life care if you’re no longer able to communicate your wishes. Among other things, you can direct health care providers to withhold artificial life-prolonging measures (while still providing pain management or other comfort care) if your physicians determine that there is no reasonable chance for recovery. 

As with a medical power of attorney, you’ll need to sign your advanced directive in the presence of two witnesses, one of whom must be completely independent. In lieu of witness signatures, you can opt to have your advance directive acknowledged by a notary.

Putting your desires for end-of-life care in writing will ensure your wishes are respected and understood by health care professionals and loved ones.

HIPPA AUTHORIZATION FORM

It is also very important that your medical power of attorney includes a HIPAA authorization, allowing your designated individual to receive your health care information.

Health care information includes knowing whether you are in an emergency room or other health care facility. Ensuring your loved ones can access your medical records when needed can help make your care more efficient and reduce stress for everyone involved.

TEXAS ESTATE PLANNING CHECKLIST

As you set up your estate plan, make sure you’ve completed these steps: 

• Inventory your assets, including financial accounts, real estate, personal property and digital assets. Think about how you want to divide them up. 

• Confirm the beneficiary designations you have on file for accounts and policies that allow them. 

• Work with an estate attorney familiar with Texas law to make sure your plan is complete and aligned with your wishes. 

• Work with a financial advisor to integrate your plan with the other components of your financial life, including tax strategies. 

• Review your plan every 2–3 years or after you’ve experienced a life event. 

AVOIDING COMMON MISTAKES IN TEXAS ESTATE PLANNING

NOT ACCOUNTING FOR COMMUNITY PROPERTY LAWS

Texas’ community property laws can make estate planning more complicated.  A proactive estate planning strategy can help ensure that all your assets go where you desire after your death.

FORGETTING TO UPDATE BENEFICIARIES

Regularly reviewing and updating your beneficiaries is essential when estate planning in Texas. If you don’t keep up with this, your assets could be distributed to unintended people.

OVERLOOKING DIGITAL ASSETS

We’d be remiss if we didn’t include digital assets in our estate planning guide as we live in such a technology-driven world. Between smartphones and the cloud, we practically have everything we need at our fingertips. Many people don’t realize that there’s more to digital assets than just online banking and retirement accounts. They can also include your social media and email accounts, and anything with a username and password. 

It is important to designate individuals that can access these accounts upon your passing. If possible, also provide current login information and any PINs or answers to security questions. While these are good tools for cybersecurity, they become a hindrance to those who actually need to access your accounts.   

FAILING TO NAME SUCCESSORS

The executor, guardian for minor children, powers of attorney, trustees and health care agents you name could die or otherwise be unable or unwilling to act in these capacities in the future. By naming one or more successors when setting them up, you can prepare against that possibility.

HOW A FINANCIAL ADVISOR CAN SUPPORT YOUR TEXAS ESTATE PLAN

An estate plan is an important part of your overall financial picture, but it’s just one of many pieces. A financial advisor who’s familiar with Texas rules can coordinate with your estate attorney, help integrate retirement and tax planning into your estate plan, and make sure your full picture is working together. 

FREQUENTLY ASKED QUESTIONS ABOUT TEXAS ESTATE PLANNING

WHAT HAPPENS IF I DIE WITHOUT A WILL IN TEXAS?

In the absence of a will, you’ll be considered to have died “intestate” and Texas law will determine who inherits your assets.

Texas intestacy laws are very complex. For example, children inherit even if there is a surviving spouse.  But the child’s share of the intestate distribution depends upon their relationship to the surviving spouse. If there are no children, parents share an inheritance with the surviving spouse.  And siblings are often intestate distributees, as well.

DO I NEED A LAWYER TO WRITE A WILL IN TEXAS?

Technically, no – Texas does not require testators to have a lawyer to write their will. However, we highly recommend it. An estate planning attorney can be a valuable resource to help ensure your will meets all legal requirements and is properly executed.

DO I NEED A REVOCABLE LIVING TRUST TO AVOID PROBATE IN TEXAS?

A revocable living trust can help your estate avoid probate. But all non-retirement assets must be titled in the name of the revocable living trust during your lifetime. Consider working with an estate planning attorney to ensure you’ve set up everything correctly.

Without a revocable living trust, your personal representative has no authority to act without a probate proceeding, with a few exceptions: property that is titled as tenants by the entirety or joint owners with rights of survivorship, and beneficiaries that are on file for retirement accounts and insurance policies, for example.

IS THERE AN ESTATE OR INHERITANCE TAX IN TEXAS?

No, Texas has no estate or inheritance tax. However, you may still be subject to federal estate tax.

WHAT HAPPENS IF I MOVE OUT OF STATE?

What happens to your estate is determined by the state law where you live. If you move out of Texas, you should consult an estate planning attorney in your new location to make sure your plan is still efficient and complete.

GETTING STARTED WITH YOUR TEXAS ESTATE PLAN

Estate planning in Texas involves understanding state-specific laws and regulations that can impact how your assets are managed and distributed. Unlike some states, Texas doesn’t have an estate or inheritance tax, which can be beneficial. Texas also has community property laws, which are important to understand when forming your estate plan.

It's essential to work with a financial advisor and estate planning attorney familiar with Texas laws to help ensure your estate plan is comprehensive and compliant. Planning now can give you peace of mind that your wishes will be followed and your loved ones will be taken care of.