You don’t need a law degree to understand the essentials of estate planning, but working with an experienced attorney can make all the difference. As highlighted in a recent Pauls Valley Democrat article, “Some real facts about estate planning,” getting the right information can ease anxiety and help you make smart decisions for yourself and your loved ones.
Trusts and Taxes: What’s the Real Deal?
There’s a common misconception that creating a trust automatically helps you avoid taxes. In reality, the tax benefits of a trust depend on several factors, including the type of trust and the specific taxes in question, such as income taxes, federal estate taxes, state estate taxes, or inheritance taxes.
For example, a revocable living trust doesn’t shield you from income taxes—the grantor (the person who creates the trust) remains responsible for those. In contrast, an irrevocable trust is taxed as a separate entity, and any income held within the trust may be taxed at higher rates.
When it comes to estate taxes, some trusts do offer planning opportunities, but these are usually relevant only to those with high-value estates. Currently, the federal estate tax exemption is set at $13.9 million per individual. Whether that threshold will be reduced after December 31, 2025, is still uncertain. If your estate is near or above $7 million, it’s worth having a conversation with your estate planning attorney sooner rather than later.
Who Really Pays Estate Taxes?
Another common myth is that heirs are the ones who pay estate taxes. In truth, the estate pays any applicable federal or state estate taxes before distributions are made. Beneficiaries only pay inheritance taxes if they live in one of the few states that impose such a tax.
Capital Gains and Inherited Property
One benefit of inheriting appreciated assets is the step-up in basis rule. This means heirs receive assets—like land or stock—at their fair market value as of the date of the original owner’s death. For instance, if your mother purchased land in 1958 for $10,000 and it’s now worth $100,000, she would have paid capital gains tax on $90,000 if she sold it. But if you inherit the land and sell it at $100,000, you pay no capital gains tax, since the basis was adjusted at the time of her passing.
Planning Ahead Brings Peace of Mind
The best way to navigate these questions and ensure your family’s future is protected is by sitting down with a qualified estate planning attorney. They’ll walk you through your options, including whether a trust is right for you, how to minimize potential tax liabilities, and how to ensure your wishes are followed.
At The Werner Law Firm, we understand that estate planning can feel overwhelming, but you don’t have to do it alone. Our Frisco-based estate planning attorneys will guide you through the process with clarity, compassion, and the experience needed to help you plan wisely for the future.
If you have any questions, schedule a free appointment with us through our online appointment page.
You can also read reviews from some of the hundreds of clients we have helped over the years.
Reference: Pauls Valley Democrat (April 11, 2025) “Some real facts about estate planning”
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