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Understanding Taxes and Estate Planning in Illinois

Experienced Barrington IL Estate Planning Lawyers

In 2015, the IRS reported that the total in estate taxes among tax returns for the year was approximately $17.1 billion. The state of Illinois had the fifth highest volume of estate tax return filings in the U.S. One important consideration in a comprehensive estate plan is to evaluate and analyze the tax implications—which often gets complex. Joseph M. Lucas & Associates, LLC, has been creating personalized estate planning solutions designed to minimize their client's tax burden for over 25 years.

Your Gross Estate

When viewing your estate for tax purposes, the sum of your assets is referred to as your gross estate. The assets may include the following:

  • All bank accounts and certificates of deposit
  • Annuities, stocks, bonds, and investment or retirement accounts
  • Real estate and property in which the decedent had an interest, and certain property previously subject to a marital deduction
  • Vehicles and other personal property
  • Life insurance proceeds
  • Interests in a business
  • Certain gifts executed within three years of death
  • Transfers with a retained life estate and transfers which take effect upon death
  • Revocable transfers
  • Powers of appointment
  • Life insurance proceeds
  • Transfers for insufficient consideration

The gross estate is based on value—independent of income. The gross estate is then subjected to debts deductions and management expenses, resulting in the adjusted gross estate. The gross estate is critical in the calculation of the federal estate tax and includes the determined value of real or personal property, that is tangible or not, regardless of location.

Federal Estate Tax

The Federal estate tax involves the rights for property transfer at death. Deductions are available for expenses associated with administration, taxes, charitable and marital transfers. This tax impacts the wealthy, as the 2015 exemption level was $5.4 million (annually adjusted for inflation).

Gift Taxes

In a calendar year, individuals may "gift" up to $14,000 to recipients without a tax consequence. Gifts exceeding this threshold are reported to the IRS. In certain instances, gifts related to medical expenditures or tuition may exceed the limit.

Generation Skipping Tax

There is a federal tax on larger transfers of funds that "skip a generation," such as from a grandparent, or other transfers to those over 37.5 years younger. A flat rate of 35 percent applies in these cases.

Illinois Estate Tax

The state has a separate estate tax. The IL tax applies to estates exceeding $4 million. Those who die with estates of estimated value of $4 million are required to file an estate tax return; however, deductions that may apply could reduce the estate's taxable value to below the limit.

Tools for limiting estate taxes include:

  • Gifts under $14,000 to individuals
  • AB trusts are established for child beneficiaries; however, surviving spouses may access the funds
  • QTIP trusts essentially "postpone" tax payments until the death of the second spouse
  • Life insurance trusts allow access to the value of life insurance policies

"Portability" for Spouses

This is a federal exemption which allows a surviving spouse to use whatever remaining unused amount below the exemption level that deceased spouse left. This "portability" is inapplicable to the state estate tax.

It is critical to have the various aspects of your estate professionally evaluated for tax liabilities that you or loved ones may encounter amid the changes in tax laws. The attorneys at Joseph M. Lucas & Associates, LLC, are available to assist with matters involving trusts, wills, life insurance, probate, and estate taxes individually, or as part of an overall, comprehensive estate plan. For more information, contact our office at 847-381-8700 for a consultation. We serve clients in Barrington, Inverness, Algonquin, Palatine, Cary, Fox River Grove, Kildeer, Wauconda, and throughout the area.

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