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Understanding Illinois’ estate tax law

Understanding Illinois’ estate tax law

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The estate tax is a tax placed on a deceased person’s right to transfer property after their death.  The total amount of assets in the person’s estate is known was their gross estate.

When determining what the estate tax will be, the fair market value of their assets, not what their value was when they were acquired, is used to determine the deceased’s gross e state.

Once the amount in the gross estate is decided, certain deductions are permitted before arriving at the amount known as the taxable estate. Deductions may include things like mortgages, estate administration expenses, debts and property given to qualified charities or a spouse. Once these deductions have been made, the tax amount is computed. 

Illinois estate tax guidelines 

The Illinois estate tax is separate from the federal estate tax. On the federal level, the estate tax only applies to estates worth more than $5.25 million. In Illinois, this tax applies to estates with an estimated gross value of $4 million or more. It is important to remember that having an estate worth over this amount does not necessarily mean that taxes will need to be paid, because deductions can reduce the taxable amount or eliminate owed taxes altogether.

However, if the estimated value of the estate is over $4 million, the executor will need to file an estate tax return, regardless of whether or not taxes will be paid on the estate. If taxes are owed on the estate after deductions are made, they must be paid within nine months following the estate owner’s death.  

Ways to reduce the tax 

One exception to these estate tax rules is that an unlimited amount of money can be left to a surviving spouse tax-free. When this occurs, all of these assets are then added to the living spouse’s taxable estate.  While this may initially seem like a viable tool to reduce estate taxes, those devising their estate plan should do this with care because any children that receive these assets after the benefitting spouse passes away are likely to have to pay more in estate taxes. Additionally, doing this defers the tough decisions that have to be made about assets until the death of the spouse.

Although Illinois does not have a gift tax, on the federal level, $14,000 a year can be given to another person as a gift and $28,000 if the gift is being given jointly by spouses. These monetary gifts can be given tax-free and can reduce an estate’s taxable amount. Those who have questions about this tax and how they can reduce their estate taxes should work directly with an attorney who can provide them with assistance throughout the estate planning process.

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