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Understanding the Applicable Exclusion Amount in Estate Planning
Definition & Meaning
The applicable exclusion amount refers to the maximum value a person can transfer to others without incurring federal estate tax. This amount is crucial for estate planning, as it determines how much wealth can be passed on without tax liabilities. Additionally, property left to qualifying charities or a spouse who is a U.S. citizen is exempt from estate tax, allowing individuals to maximize their estate's value for their heirs or charitable causes.
Table of content
Legal Use & context
This term is primarily used in estate planning and tax law. Legal professionals often reference the applicable exclusion amount when advising clients on how to structure their estates to minimize tax burdens. It is relevant in various legal contexts, including:
Estate planning
Tax law
Charitable giving
Individuals can utilize legal templates from US Legal Forms to create documents that effectively manage their estate plans in accordance with these laws.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A person has an estate valued at $12 million. If the applicable exclusion amount is $11.7 million, only $300,000 would be subject to federal estate tax.
Example 2: A person leaves their entire estate to a charity. In this case, the entire amount is exempt from estate tax, regardless of its size.
State-by-state differences
Examples of state differences (not exhaustive):
State
Applicable Exclusion Amount
California
Follows federal exclusion amount
New York
$6.11 million (2023)
Florida
Follows federal exclusion amount
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
Comparison with related terms
Term
Definition
Gift Tax Exemption
The amount one can give to another person without incurring gift tax, which is separate from the estate tax exclusion.
Federal Estate Tax
A tax on the transfer of the estate of a deceased person, applied after the applicable exclusion amount is exceeded.
Common misunderstandings
What to do if this term applies to you
If you are planning your estate, consider the applicable exclusion amount to maximize your wealth transfer. You may want to:
Consult with a legal professional to understand your specific situation.
Explore US Legal Forms for templates that can help you create your estate planning documents.
Review your estate's value and consider charitable contributions to reduce tax liabilities.
Find the legal form that fits your case
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