As an Illinois resident, your estate could owe estate taxes to both the IRS and the state of Illinois if it has a large enough value. People who own highly valued real estate or who have significant assets should learn more about planning for estate taxes.
What Is an Estate Tax?
An estate tax is a tax that your estate pays based on the value of the assets that you own when you die. This is different than an inheritance tax, which taxes any bequests or inheritances that you might receive. There is no federal or Illinois inheritance tax, but both have separate estate taxes.
What Is the Federal Estate Tax?
The federal estate tax applies if you die with a taxable estate of more than $11.18 million as of 2018. In prior years, the threshold was $5.5 million or less. With passage of the Tax Cuts and Jobs Act, the threshold doubled, though it lasts only until 2025 by the current legislation. As a result, only people with very large estates will owe taxes. If you do owe taxes, though, the tax rate can be a staggering 40 percent. Fortunately, the IRS only assesses the tax on amounts that exceed the $11.18 million “exemption” threshold.
What Is the Illinois Estate Tax?
In addition to the federal government, Illinois also taxes estates. The threshold amount is considerably lower – with $4 million or more in your estate, it will owe taxes. The tax rate starts at about 28 percent but may vary when combined with the federal estate tax.
When Might You Need to Do Estate Tax Planning?
Not everyone needs to do estate tax planning – some simply have too few assets to exceed the state and federal thresholds. Those who have valuable assets should take into account the estate tax when creating their estate plans. Your estate might owe taxes later if:
- You make a lot of lifetime gifts (these count against your federal estate tax exemption)
- You own extensive real estate that has appreciated in value
- You may inherit wealth from your spouse or another relative
- You are a “high earner”
If any item on this list describes you, talk to an estate planning attorney about how to plan for estate taxes. You may need to work on decreasing your taxable estate to avoid owing thousands in taxes later.
Want to start planning your estate? Local attorney Andrew Szocka, Esq. provides thorough and speedy estate planning help in the Chicagoland area. To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.