Given recent increases to the Illinois personal and corporate income tax rates, it is important to review how your family may be impacted by another Illinois tax that does not receive as much media attention: the Illinois estate tax. Illinois is one of eighteen states to have its own estate tax separate from the federal estate tax. Estates that are exempt from the federal estate tax may still owe Illinois estate tax.
What is the Illinois estate tax?
It is a tax assessed on the assets you own at the time of your death less the debts and expenses related to your estate
Who does the Illinois estate tax apply to?
- Residents of Illinois with estates over $4 million
- Nonresidents of Illinois with real or physical property located in Illinois that is valued over $4 million
How does the Illinois estate tax differ from the federal estate tax?
Threshold and Rate:
- Federal → Estates above $5.49 million are taxed at 40%
Illinois → Estates above $4 million are taxed at variable rates up to 28.5%
- Federal → Estates that do not use the full $5.49 million exclusion can elect to transfer the unused amount to the surviving spouse
- Illinois → Not Applicable
What is included in an Illinois estate?
- Bank accounts
- Investment property such as stocks, bonds, CDs
- Retirement accounts
- Real estate
- Interests in family businesses
- Interests in other businesses
- Life insurance proceeds from policies you owned
- Personal property (cars, antiques, jewelry, art, etc.)
It will be the executor of your estate’s responsibility to locate all the assets that make up your estate and add up their value. The value of your estate will be reduced by any debts that you owe and expenses of the estate. If the assets of your estate are worth more than $4 million, the executor will need to file an Illinois estate tax return and pay any tax due within nine months of your death, even if a federal estate tax return isn’t required. If you think your estate many be at risk of this tax, there are action steps you can take now to lessen the impact.
Ways to Reduce or Eliminate the Illinois estate tax:
- Make annual exclusion gifts: You can give up to $14,000 to any one person during the year and not create a federal gift tax issue (Illinois does not have a gift tax). If you are married you may combine your gifts, referred to as “gift-splitting”, to transfer gifts valued at up to $28,000 to a single person each year
- Use advanced gift and estate planning techniques
- Life insurance planning
- Assets left to a surviving spouse or civil union partner are exempt from the Illinois estate tax.
- Assets left to charity are exempt from the Illinois estate tax
- Spend your assets during your lifetime
- Move to a state without an estate tax and sell your Illinois real estate and business interests/property located in Illinois
How DHJJ Financial Advisors Can Help