In 1789, Benjamin Franklin famously wrote, “In this world nothing can be said to be certain, except death and taxes.” If that remains true, it would be wise to plan for both.
Everyone should plan ahead
Contrary to popular belief, you don’t have to be wealthy to have an estate or to benefit from estate planning. Quite simply, your total estate consists of everything that you own when you die, and may include your residence, additional real estate, tangible personal property (typically, the “stuff” in your residence), vehicles, firearms, bank accounts, retirement plans, investments, business ownership interests, and life insurance.
Either you decide, or the State will for you
While beneficiary designations may govern who inherits certain assets (e.g., bank accounts, investment accounts, & life insurance), the bulk of a typical estate is inherited via a Will, or if no Will, pursuant to state law. Who would inherit from you under Texas law, and what they would inherit, may vary depending whether you have a surviving spouse, whether you have surviving children or grandchildren, whether your surviving children and/or grandchildren are also the children and/or grandchildren of your surviving spouse, whether your estate is comprised of separate property, community property, or both, and whether such property is personal property, real estate, or both.
Dramatic tax law changes
In addition, estate tax laws have changed dramatically since 2010. Currently, the federal estate tax is a 40% tax imposed upon the value of each estate that exceeds one’s remaining lifetime gift & estate tax exemption. The current exemption is $5 million per person, indexed annually for inflation (consequently, it is $5.43 million per person in 2015). Your exemption may be used to avoid gift tax during your lifetime, estate tax upon your death, or a combination of both, and any part of your exemption that you do not utilize can now be transferred to your surviving spouse.
However, if the value of your total estate at death is greater than the amount of your remaining exemption at death, and you have done no estate tax-efficient planning, your heirs may only inherit 60¢ of each dollar of the difference.