Are You Leaving a “Tax Bomb” in Your Illinois Estate Plan?

 Posted on November 05,2020 in Estate Planning Blog

When creating an estate plan, most parents have the very best of intentions in mind. By taking the time to lay out their wishes, they are usually trying to not only manage their assets but also to provide for their heirs well into the future. Unfortunately, a lack of understanding of estate tax laws can lead to serious and significant mistakes—sometimes in the form of “tax bombs” for their children and grandchildren. You most likely have no intention of leaving behind unpleasant surprises for your heirs, so it is important to work closely with an experienced estate planning attorney to ensure that everything is arranged properly.

Tax Levies Will Vary

Tax levies—or the amount owed by an heir after receiving an inheritance or gift—can vary drastically, depending on a number of factors. Such factors include the size and value of the inheritance and how the asset was transferred to the heir. If, for example, a parent passes down an asset before his or her death, hoping to protect the asset from long-term health care costs or to avoid having the asset pass through probate court, the item can usually be considered a gift. Depending on the value of the gift at the time of the transfer and the amount originally paid for the item, the child may be required to pay gift taxes on the difference. The bigger the difference, and the higher the value of the item, the bigger that tax will likely be.

Advance Preparation May Protect Assets

Instead of using the gifting process to protect large assets from probate court or being chipped away at by long-term healthcare costs, individuals can utilize other planning and preparation tools to effectively manage their estate. One such example would be the use of a revocable living trust.

Under a revocable living trust, assets can be placed into the trust prior to the guarantor’s death to protect them from unexpected expenses and other considerations. The assets can then be passed down after the death of the guarantor without going through probate. In many cases, this may help prevent the excessive tax levies that are sometimes applied to high-value assets that are handed down as gifts. It should be noted, however, that each situation and estate is unique. As such, this solution—as well as any other creative estate planning solution—is best discussed with an experienced will and trusts attorney.

Contact a DuPage County Asset Protection Attorney

At A. Traub & Associates, we make your estate planning goals our goals. With decades of experience and vast legal knowledge, we can develop creative and affordable solutions for even the most complex estates. Take the first step by scheduling an initial, confidential consultation with a skilled Lombard wills and trusts attorney today. Call 630-426-0196 for an appointment.

Sources:

https://www.acuitymag.com/finance/are-you-leaving-a-tax-bomb-in-your-will

https://www.forbes.com/sites/bobcarlson/2018/07/23/defusing-the-time-bombs-in-your-estate-plan/