FBP - Certified Public Accountants

Illinois Estate Tax—Everything You Need to Know

Written by Layne Bodily

April 5, 2023

Real estate

This is the final installment of a three-part series on estate planning.

Illinois is one of 12 states that impose an Estate or Inheritance tax in addition to the Federal Estate tax. The Illinois estate tax is administered through the Office of the Attorney General, not the Illinois Department of Revenue.

What is the Illinois estate tax?

The Illinois estate tax is a tax on the transfer of property at death. The tax is imposed on the estate of every resident of Illinois who dies with a taxable estate. The tax is also imposed on the estates of certain non-residents who own property located in Illinois.

The amount of the tax is based on the value of the decedent’s taxable estate. The taxable estate includes all property owned by the decedent at death, including real estate, personal property, and interests in businesses, trusts, and partnerships. It also includes life insurance proceeds that are payable to the estate and stocks and bonds.

The Illinois estate tax is a graduated tax, with rates ranging from 0.8% to 16%. The maximum rate of 16% applies to estates valued at $10 million or more.

Who is subject to the Illinois estate tax?

In order to be subject to the Illinois estate tax, an individual must die with a gross estate valued at more than $4 million. The estate tax is imposed on the entire gross estate, regardless of whether any of the assets are passing to a surviving spouse.

The first $4 million is exempt. This means your estate will only be taxed on the value of assets exceeding $4 million. The Illinois estate tax exemption is not being adjusted for inflation in 2022.

For example, let’s say you die in 2022 and your estate is valued at $5 million. The Illinois estate tax would only be applied to $1 million, the value of your estate exceeding the exemption amount.

It’s important to note that the Illinois estate tax exemption applies to each individual, not each couple. This means that if you are married and your combined estate is valued at less than $8 million, no Illinois estate tax will be owed.

However, if your spouse dies before you and his or her separate estate is worth more than $4 million, any amount over that threshold may be subject to Illinois estate tax when you die.

How is the Illinois estate tax calculated?

The Illinois estate tax rates in 2022 are as follows:

State Death Tax Credit Table

How can the Illinois estate tax be avoided?

There are a few ways that the Illinois estate tax can be avoided. The first is by setting up a trust. Trusts can be used to transfer property to loved ones without going through probate, and they can also be used to minimize taxes. Another way to avoid the estate tax is by gifting property during your lifetime. You can gift up to $16,000 per person, per year, without incurring any gift tax.

What happens if the Illinois estate tax is not paid?

If the taxes owed are not paid, the estate will be liable for interest and penalties. The interest rate is 10% per year and the penalty is 5% of the unpaid tax.

Conclusion

The Illinois estate tax is a very important tax to consider when planning your estate. While the tax may not apply to everyone, it is important to be aware of it and to consult with a qualified professional to determine if it applies to your specific situation. If you have questions about the Illinois estate tax, please contact us.

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