Illinois Estate Tax for Will County Families

The number to know

The Illinois Estate and Generation-Skipping Transfer Tax Act sets the exclusion amount at $4,000,000 for people who die on or after January 1, 2013. The Illinois Attorney General administers the tax and says the federal exemption is higher than the Illinois one. An estate can owe nothing to the IRS and still owe Illinois.

The Attorney General also says the exclusion is a taxable threshold and not a credit against the tax. Think of it as a line. Below it, there is no Illinois estate tax return to file. Above it, the tax is figured on the estate, and the math is not a simple percentage.

The Attorney General's own examples show the shape of it. An estate of $4,000,000, all in Illinois, owes $0. An estate of $5,000,000, all in Illinois, owes $285,714. Those are sample figures from the state, not a prediction for any family.

What counts toward the line

The statute measures the tax on the gross estate, a term borrowed from federal tax law. It is a tax measure and it is not the same list as the probate estate. Your home, your accounts, your business interests and other property can all be part of the total. The Attorney General also says adjusted taxable gifts are added in before the $4,000,000 test is applied.

That is why a quick guess from the balance of one bank account does not work. Add up everything you own, then ask what counts. Jeff can walk through your list on a call.

Why married couples need to look at this

Federal law lets a surviving spouse carry over the unused part of a first spouse's exemption. The Attorney General's fact sheet says that carry-over, called portability, does not apply when the Illinois tax is figured. If the first spouse leaves everything outright to the survivor, the first spouse's $4,000,000 line can go unused, and the survivor's estate starts from a single line.

Illinois does allow a separate state election for qualified terminable interest property, called a QTIP election, on a timely filed Illinois return. The Attorney General shows an example where an estate of $13,610,000 with a $9,610,000 Illinois QTIP election owes $0. Whether that kind of structure fits your family depends on the whole plan, and it is built into documents long before anyone files a return. Look at revocable living trusts and the will versus trust page for the basics.

Property in other states

If you live in Illinois, the law treats all of your property as having an Illinois tax situs, with one exception: real estate and tangible personal property that sits in another state. That matters if you own a vacation condo or land elsewhere.

The Attorney General explains the method. The tax is first figured as if all assets were in Illinois. Then that number is multiplied by the share of the assets that are in Illinois. In the state's example, a $5,000,000 estate with half the property in Florida owes $142,857, even though Florida has no state estate tax.

Filing and paying

The Illinois return is Form 700, and it goes to the Attorney General, not to the Will County courthouse. By the Attorney General's instructions, estates from counties other than Cook, DuPage, Lake and McHenry file at the Springfield office. The tax itself is paid to the Illinois State Treasurer.

• The tax is due nine months after the date of death.
• The Attorney General grants extensions on application and recognizes federal extensions.
• A request for an Attorney General extension, on Form 700-EXT, should be filed within nine months of death.
• If the federal tax is paid in installments, the Illinois tax may be as well.

The statute ties the Illinois due date to the federal due date, including extensions. The date runs from the day of death, so whoever handles the estate should put it on the calendar in the first week.

What you can do before it matters

If you are near the line, or you expect to cross it, planning is the point. If you are well under it, the Illinois tax may not apply to you at all, and a short call can confirm that. Beneficiary forms, how property is titled, how a spouse is provided for, and gifts all change the numbers, and each choice has costs of its own.

The first call with Jeff is about your actual list: what you own, who is married to whom, and where the property sits. From there he can tell you whether the Illinois tax is a live concern for your family or a footnote. Pair this with the Do I Need a Trust tool if you want a quick read first.

What to gather

If you want to see whether the Illinois tax is in play for you, collect these before the call:

• Deeds or tax bills for every property, including property in other states.
• Recent statements for bank, brokerage and retirement accounts.
• Life insurance policies and who owns them.
• Business ownership papers, if any.
• A list of gifts you have made, with dates and amounts.
• Your current will and trust, if you have them.

Reviewed by Jeff McCarthy, Attorney, Inspired Law Group, 136 E 9th St, Lockport, IL 60441.