Tax Considerations for Estate Planning in Illinois

 Posted on December 16, 2024 in Estate Planning

Seniors wanting to ensure their loved ones are cared for and their assets are distributed according to their wishes should look into estate planning. While leaving clear instructions for how you want things addressed once you pass can give you a great deal of peace of mind, estate planning can have unexpected tax implications. 

For example, certain strategies such as gifting or creating trusts can inadvertently trigger gift taxes or higher estate taxes. Failure to account for Illinois estate tax laws can also reduce the amount passed on to heirs. To learn more about how taxes could impact what you leave behind and those you leave it for, speak with a knowledgeable Lombard, IL estate planning lawyer.

How Do Federal Estate Taxes Work?

Estates that exceed a certain value are subject to federal estate taxes. As of 2024, that limit is $12.92 million per individual, something most people will not have to worry about. For those whose estate is worth more than that amount, anything exceeding that limit could be taxed at up to 40 percent, significantly reducing the amount that would be left.

For married couples, the exemption can be doubled, allowing them to protect up to $25.84 million from taxes. This is done through "portability," which allows a surviving spouse to use any unused portion of their deceased spouse’s exemption. To take advantage of this, when your spouse passes away, you need to file an estate tax return promptly.

How Do Illinois Estate Taxes Work?

Unlike many states, Illinois has its own estate tax for estates worth $4 million or more. This means that even if your estate is not subject to federal taxes, it could still owe Illinois estate taxes ranging from 0.8 to 16 percent, depending on the size of the estate. There are some strategies people use in the estate plans to avoid this, including:

• Gifting assets: Since there is no gift tax in Illinois, you can give away money or property in your lifetime rather than leaving it behind once you pass away. This can lower the value of your estate and might keep it exempt from taxes.

• Setting up trusts: Certain types of trusts, like irrevocable life insurance trusts, can help reduce the taxable value of your estate.

Do You Pay Income Taxes on Inherited Assets?

When heirs inherit assets, they do not typically need to pay income taxes on the value of the inheritance. However, certain assets such as traditional IRAs or 401(k)s can be taxable when a beneficiary withdraws money. Since these withdrawals are treated as income, they are taxed at the beneficiary’s regular income tax rate.

Contact a DuPage County, IL Estate Planning Lawyer

Estate planning can be complex, and it can be challenging trying to understand how taxes might be involved. An experienced Wheaton, IL estate planning attorney who understands Illinois tax laws can help you create a plan that minimizes taxes and maximizes the inheritance you leave behind. At A. Traub & Associates we are passionate about helping our clients create plans that serve their interests and put their minds at ease. Call us at 630-426-0196 to schedule a private consultation.