You want to create the most favorable conditions for your loved ones when you pass away, and for most, that means creating a detailed estate plan that outlines their wishes and leaves nothing up to chance. While your Illinois estate planning attorney can help you do just that, your estate may have to pay certain fees to ensure that everyone gets the property or assets you want them to. In Illinois, one of those fees is the estate tax. Here’s what you need to know about this tax and what it ultimately means for your loved ones and your estate.
What Is the Illinois Estate Tax
The Illinois estate tax is a tax you pay to the state when you pass away. It’s often referred to as the “death tax” and must be paid prior to the distribution of your estate’s assets. Currently, Illinois has a maximum estate tax rate of 16%, which is far from cheap. But luckily, the estate tax only applies to certain families or individuals. Others are exempt from paying the estate tax.
The Estate Tax Exemption
Under Illinois law, only estates with a value of $4 million or more are subject to the estate tax. This means individuals with estates valued lower than $4 million won’t have to worry about the tax at all.
Of course, the exact amount your estate will owe depends on the value of your estate itself. The larger your estate is, the more you’ll have to pay, with the maximum tax rate sitting at 16%. The state does follow a tiered tax rate system, so the amount your estate owes will depend on how valuable it is.
Who Pays the Estate Tax?
You won’t have to pay the estate tax before passing away, and the tax won’t be your loved ones’ responsibility. Instead, the payment comes from your estate and must be submitted by the executor of your estate no more than nine months after you pass away. The payment must be made before your assets can be distributed to your heirs and beneficiaries. Anything left after paying the necessary taxes to the state and federal government can then be distributed without issue.
This is why it’s so important to work with an experienced Illinois estate planning attorney. They can help you appoint an executor you can trust to file all the necessary documentation and payments on time and in full. In many cases, your attorney can act as executor if you prefer.
Can You Avoid the Illinois Estate Tax?
Though the Illinois estate tax is a required fee for estates over that $4 million value mark, you may be able to reduce your liability and keep more of your assets in your loved ones’ hands. Some strategies you may want to explore include the following:
- Setting up a living trust: You may be able to reduce your estate’s value by creating a trust and transferring assets out of your estate and into your loved ones’ names before you pass away. This may help you increase what your loved ones end up inheriting and reduce what your estate owes in taxes.
- Gifting money: You may also choose to reduce your estate’s value by gifting your loved ones money while you’re alive. You’re able to gift up to $17,000 per year per person without having to worry about paying the federal gift tax. Over the years, these gifts can reduce the value of your estate and help you stay under the $4 million value limit.
- Investing in life insurance: Life insurance plans can help reduce the number of estate taxes you owe. Your beneficiaries will receive the money from the insurance company, and since you invested your money in those policies rather than letting it grow in your estate, your estate’s value may stay below the $4 million mark.
Speak With an Experienced Illinois Estate Planning Attorney
If avoiding the Illinois estate tax is a priority, consider speaking with an experienced estate planning attorney. At Legacy & Life Law Firm, we’ll help you create a plan that represents your wishes clearly. Contact us to schedule an appointment.