Estate Tax Planning Tips for the Illinois Estate Tax

 Posted on October 08, 2024 in Estate Planning

Illinois is one of the only twelve states (and D.C.) that have passed a state estate tax, which will be assessed to estates worth over $4 million (in contrast to the Federal estate tax exemption of $13.61 million). When drafting your Illinois estate plan, an attorney well-versed in Illinois estate planning can implement strategies to minimize the state's estate tax burden.

What Type of Property is Included in an Illinois Estate?

Illinois' estate tax applies to all Illinois residents and to non-residents who own real property in the state. It includes a comprehensive list of properties such as bank and retirement accounts, real estate, personal property, business interests, investments, life insurance policies, and more. The good news is that both spouses are entitled to the $4 million exclusion.

Estate Planning Techniques to Minimize the Illinois Estate Tax

To mitigate an estate's tax liability, you will have to reduce its monetary value. There are several ways to do this:

• Irrevocable Trusts:  Making a living trust a part of your estate plan can reduce your liability by making you eligible for deductions and exemptions on trust property. An irrevocable trust is the best vehicle for this type of use as it ensures that the trust has full ownership of the trust assets, absolving the estate from liability on any taxes on these assets. 
• Special Trusts: Special trusts such as a Bypass Trust, Medicaid Asset Protection Trust, or a Special Needs Trust can reduce the taxation burden on the estate while protecting its assets. 
• Annual Gifting: Giving gifts during your lifetime will minimize your estate value and the resulting estate taxes. At the federal level, certain educational and medical-related gifts are tax-exempt. 
• Charitable Giving: There is a 100 percent tax deduction on charitable donations. To maximize the benefits of charitable giving, you may set up a large donation upon your death while continuing to donate during your life. A charitable trust can also be a great way to set up charitable giving. 
• Changing Residency: Although this can be a big decision, individuals and families who establish residency in another state may benefit from eliminating their taxation impact. This might require living in another state for only part of the year. 
• Marriage Deductions: This technique can delay estate taxes, though not curtail them entirely. Because transfers to spouses are exempt from estate taxes, using marital deductions can delay the taxation of the estate until the surviving spouse passes away. 
• Family Limited Partnership (FLP): Through an FLP managing partners can give limited partnership interests to family members, which can lower the estate's value while it retains control of the assets. 
• Update your estate plan! Make sure to review your estate plan from time to time to ensure you are maximizing planning opportunities.

Contact a Naperville, IL Estate Planning Lawyer

The Illinois Estate Tax necessitates that individuals and families carefully plan their estates to minimize tax liability. A Yorkville, IL estate planning attorney can advise you on the best strategies to structure your Illinois estate plan. At Gateville Law Firm, we know how important it is to provide individuals and families with valuable estate planning advice. Call 630-780-1034 to schedule a free consultation today.