When it comes to estate planning, one of the most important concepts is the applicable exclusion amount. This number is key when it comes to figuring out the tax implications of an estate when someone passes away. Understanding this concept is essential if you want to be sure that your estate is handled properly.
What Is the Applicable Exclusion Amount?
The applicable exclusion amount is the amount you can leave your heirs without paying any estate taxes upon your death. This amount varies depending on the year, and it is updated each year according to cost-of-living adjustments. For example, as of 2020 the applicable exclusion amount is $11.58 million. This means that anyone who dies in 2023 can leave their heirs up to $12.62 million without incurring any estate taxes. Any remaining assets in an estate are subject to estate tax at various rates.
Why Is the Applicable Exclusion Amount Important?
The applicable exclusion amount is an important number because it can help you structure your estate properly. This means you can make sure that any assets above the applicable exclusion amount are properly structured in order to limit the amount of estate taxes owed. For example, you could structure your assets in trusts or other vehicles to help reduce the amount of estate taxes owed. This makes it important to keep track of the applicable exclusion amount when you are planning your estate.
Conclusion
Understanding the applicable exclusion amount is essential when it comes to estate planning. By keeping track of this amount, you can make sure that you structure your estate correctly and take advantage of the available tax breaks.