Illinois Estate Tax: The Guide to Rates, Limits & Exemptions

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Paul Sundin, CPA

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Illinois is not known as a tax friendly state. We know that income tax rates and property tax rates can be high. But how much do you know about the Illinois estate tax?

In this article, we will discuss the Illinois estate tax and also touch on the inheritance tax and gift tax. If you are a high-income taxpayer or have a large estate, you might want to pay close attention.

Illinois Estate Tax FAQs

Does Illinois have portability?

Unfortunately, the Illinois estate tax is not portable between a married couple. When one spouse passes away and the estate goes to the surviving spouse, there is no estate tax. However, upon the death of the surviving spouse, the estate can only use one estate exemption.

Federal Estate Tax

The estate tax is commonly known as the death tax. I think you understand why. Of course, it’s not a very well liked or even understood tax.

Fortunately, most people in America won’t have a problem with it. When you factor in the estate exemption amount, the estate tax will only affect less than 1% of all taxpayers.

Even though it is unlikely to affect many people, it still makes sense to understand how it works. Many people don’t realize they have an estate tax problem until later in life as they approach death.

Even though it is never too late to do estate tax planning, it is best to get out in front of the issue. There are many structures that can be implemented early to avoid big problems down the road.

Conceptually, the estate tax isn’t really tough to understand. When someone passes away, the executor or administrator of the estate must summarize all the finances of the decedent.

The estate assets would include mutual funds, stocks, real estate, business holdings, and any personal items including collectibles. Some assets are very simple to value while others will require an appraisal or a form of formal valuation. This is where the complexity lies.

Once assets have been valued, the executor can then subtract debt, mortgages, and any other liabilities of the decedent. The executor can also subtract from the estate certain administrative costs like legal, appraisal, and accounting fees.

The results of this exercise is what I would call net assets. The exemption amount should be subtracted from this and any remaining balance would be taxed at approximately 40%.

With such high of a tax rate, it makes sense to do as much planning as possible. This planning can encompass lifetime gifts, trusts and other strategies.

Illinois Inheritance and Gift Tax

Illinois does not have an inheritance tax nor does it have a gift tax. However, other states have inheritance tax that could apply to Illinois residents. For example, some states will levy an inheritance tax on any property that is inherited in the state, even if the beneficiary or heir lives in another state.

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