Parents and grandparents give a great deal to their children and grandchildren. One of the most tangible legacies they can give is generational wealth. When passing down wealth, most people want to avoid taxation as much as possible, so as to give the maximum amount to their heirs.
Estate Tax Exemption
An estate tax is applied when the value of the estate exceeds an exclusion limit set by law. This tax is applied based on fair market value, not on what the deceased originally paid for assets. The federal government and some states have estate taxes.
But there is an exemption to the federal estate tax that lets a specific dollar amount pass to heirs tax-free. In 2017, President Donald Trump, through the Tax Cuts and Jobs Act (TCJA), doubled the estate tax exemption from $5 million to $10 million for individuals. This amount is indexed for inflation. Therefore, as of 2022, the estate tax exemption for an individual is $12.06 million, while a married couple has a combined exemption of $24.12 million….