The Estate Tax Exclusion refers to the portion of an estate that is exempt from federal estate tax upon the death of an individual. This means that when calculating the total value of an estate for tax purposes, a specific amount is allowed to be excluded from taxation, effectively reducing the taxable value of the estate.
As of 2023, the federal estate tax exclusion amount is set at $12.92 million per individual. This means that if an individual’s estate is valued at less than this amount, it will not be subject to federal estate taxes. For estates exceeding this exclusion amount, the value above the exclusion threshold is subject to taxation at progressive rates, which can be as high as 40%.
The Estate Tax Exclusion can have significant implications for estate planning, as individuals may choose to structure their assets and estate distributions in a way that maximizes this exclusion. For instance, an individual might make gifts during their lifetime to reduce the size of their estate, thereby keeping it below the exclusion threshold.
In Texas, there is no state estate tax, which means that the federal estate tax exclusion is the primary consideration for residents in estate planning. As a result, Texans can focus on strategies to leverage the federal exclusion without concern for additional state-level taxes.
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