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Simple English definitions for legal terms
estate tax threshold
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A quick definition of estate tax threshold:
The estate tax threshold is the amount of money that a person can leave behind after they pass away without having to pay estate taxes. This amount is currently set at $11,700,000 until 2026. If a person gives gifts before they pass away, it reduces the amount they can leave behind without paying taxes. The estate tax threshold is the same as the applicable exclusion amount, which is the limit on how much a person can give in their lifetime without incurring estate and gift taxes.
A more thorough explanation:
The estate tax threshold is the maximum amount of money that an individual can leave behind in their estate without incurring estate taxes. This threshold is also known as the applicable exclusion amount, which includes both gifts and estates. The current estate tax threshold is set at $11,700,000 until 2026.
For example, if a person's estate is worth $10,000,000 and they did not make any gifts during their lifetime, their estate would not be subject to estate taxes. However, if they made gifts totaling $2,000,000 during their lifetime, their applicable exclusion amount would be reduced to $9,700,000, and their estate would be subject to estate taxes on the remaining $300,000.
The estate tax threshold is important for individuals who want to plan their estates and minimize their tax liability. By staying within the applicable exclusion amount, individuals can ensure that their heirs receive the maximum amount of their estate without having to pay a significant amount in taxes.