Understanding Estate Taxes in Chicago

The federal estate tax is a tax on property that passes from a deceased person’s estate to their heirs. This tax affects only the wealthiest families in America. This is because the current law (Tax Year 2017) excludes the first $5.49 million of an estate from estate tax ($10.98 million for a married couple.) The estate tax is charged against only those assets which exceed the $5.49 million exemption amount. However, most people do not realize that, for the purpose of calculating the estate tax due, life insurance proceeds are included as an asset of the estate. The maximum estate tax rate is 40%.

A point that is often left out of the discussion, is the fact that the estate tax only applies to the estates transferred to a deceased person’s heirs; and does not apply against assets transferred to the deceased’s spouse. Transfers to a spouse are completely exempt from the estate tax. Although the transfer to a spouse is exempt from estate tax, the tax will be levied once that spouse passes away and distributes the assets to the children.

How does the Gift Tax affect a person’s lifetime estate tax exclusion?

The gift tax prevents people from giving away their entire estate during their life to avoid the estate tax. However, the IRS does allow people to give away their assets without reducing their estate tax exclusion amount. The current amount that a person can give away without affecting their gift or estate tax is $14,000 per person (Tax Year 2017.) This means that an individual can give away $14,000 to as many people as they want and not incur any gift tax. For married couples, this amount increases to $28,000. If an individual gives away more than $14,000 to any person, then their estate tax exclusion will be reduced by that excess amount. For example, if someone gives away $24,000 to one of their children within a given year; then upon their death their estate tax exclusion amount will be reduced by $10,000 ($24,000 – $14,000 =$10,000.)

Does Illinois have an Estate Tax?

Illinois, and a handful of other states, impose their own estate tax. Like the federal government, Illinois exempts a portion of a decedent’s estate. However, the Illinois estate tax exemption amount is currently $4 million, which is almost $1.5 million less than that of the federal exemption amount. The result is that this $1.5 million can be subject to Illinois estate tax while still being exempt from federal estate tax.

How can you make the most of your estate tax exclusion?

In order to take advantage of the full estate tax exclusion available to a married couple a credit shelter trust must be established to preserve the full exemption amount for each of them. Further, the discrepancy between the Illinois and federal estate exemption amounts can also create complex issues which must be addressed by a comprehensive estate plan.

Estate Planning Attorneys in Chicago

The estate planning lawyers at Hays Firm, LLC are knowledgeable estate attorneys who have a great deal of experience helping families to protect their assets and ensure that those assets are effectively and efficiently transfer to the next generation. Please contact us to talk about how we can help.