Proposed federal legislation will significantly raise the estate tax exemption. Here’s what that means for Illinois residents.
The newly passed Republican tax bill includes provisions that raise the federal estate tax exemption limit. These changes will affect Illinois residents differently due to the state-level estate tax currently in place.
How New Laws Affect Estate Taxes
Until now, the first $5.49 million in assets were exempt from the federal estate tax. The newly passed Tax Codes and Jobs Act, also known as the TCJA, nearly doubles the exemption limit to $11 million starting in 2018. That limit is twice as high for couples, who will soon be able pass on as much as $22 million to their heirs free of federal estate taxes. Under the new laws, the number of estates paying any federal estate tax will also dramatically reduce.
The estate tax is levied on the net value of the estate of a deceased person before distribution to their heirs. Those estates that exceed the exemption limit are taxed at a rate of 40%. As a result, about 5,500 estates (or 0.2 percent of all deaths in the US) pay the tax.
As it stands, Illinois is one of fourteen states (and the District of Columbia) with a state-level estate tax, meaning that Illinois residents affected by the previous federal estate tax exemption won’t necessarily feel relief from the new tax bill. The current Illinois estate tax exemption limit is set at $4 million, less than half of the new federal exemption. All estates that become newly exempt from paying the federal estate tax will still owe taxes in the State of Illinois. This applies to both residents and the estates of non-residents who own real estate and/or tangible personal property located in Illinois.
“While the exemptions at the federal level are substantial, the risk for people living in Illinois is significant if they don’t factor in state law,” says Steven Lindberg, Partner at Anselmo Lindberg Associates. “With tax rates up to 16%, residents of this state could face taxes that dramatically impact the value of the estate.”
There are no drastic changes expected to the Illinois estate tax laws, so it’s important to keep this state-level legislation in mind. If there is a chance that the Illinois laws will apply to you, it’s important to plan accordingly to attempt to reduce the exceptional fees tied to a lack of compliance.
“Now more than ever, it’s important to engage an experienced attorney in your estate planning efforts,” says Lindberg. “Having someone on your side who understands both the current Illinois tax law and the new nationwide policies, is worth a small fortune.”