Does a Living Trust Reduce Estate Tax?
No. A revocable living trust does not reduce estate tax, because the assets in it are still treated as yours for tax purposes and are counted in your estate. Texas has no state estate or inheritance tax, so state tax is not a concern. Federal estate tax applies only to estates above a large exemption, which is currently far above what most families own. Estates near or over the threshold need different tools, such as irrevocable trusts and gifting strategies.
What the federal exemption is
Federal estate tax is owed only on the value of an estate above the lifetime exemption. Under current law the exemption is $15 million per person for 2026 and is indexed for inflation afterward. A married couple can generally combine exemptions using portability, which lets the survivor use the first spouse's unused amount if an estate tax return is filed. Because Congress has changed the figure several times, confirm the current number with a CPA or attorney.
Why a revocable trust does not change it
Federal law includes in your taxable estate any property you transferred but kept the power to revoke or control. Because you can cancel a revocable trust at any time, its assets are counted. The trust is valuable for probate avoidance and incapacity planning, not tax reduction.
Texas has no estate or inheritance tax
Texas does not impose a state estate tax or inheritance tax. Property you own in another state may be subject to that state's estate or inheritance tax, so if you own real estate elsewhere, check the rules there.
When estate tax planning does matter
- Large estates. If your combined estate may exceed the exemption, planning with irrevocable trusts, lifetime gifts or life insurance trusts can move value out of your estate.
- Closely held business or real estate. Illiquid assets can create a tax bill with no cash to pay it.
- Future changes. The exemption has changed repeatedly. A plan built around a threshold can be affected by new legislation.
Do not overlook income tax basis
For many families the bigger tax issue is capital gains, not estate tax. Property included in an estate generally receives a new tax basis equal to its value at death, which can erase built-in gains. Lifetime gifts to an irrevocable trust usually do not receive that step-up. A plan that avoids a tax nobody owes can create a gains tax that could have been avoided. See community property and the step-up in basis.
Free consultation with a partner attorney. No cost, no obligation.
Book Free ConsultationFrequently asked questions
Do I need a trust to avoid estate tax in Texas?
No. Texas has no state estate tax, and most estates are below the federal exemption. A trust is for probate and control, not state tax.
What is portability?
Portability lets a surviving spouse use the deceased spouse's unused federal exemption, but only if an estate tax return is filed to elect it.
Which trust reduces estate tax?
Certain irrevocable trusts can, when you give up ownership and control. The right one depends on your assets and goals.
Will the exemption change?
It can. Federal estate tax law has changed several times, so review your plan when the law changes or your net worth grows.