What You Need to Know About Estate Planning in Illinois
When creating your estate plan, it’s essential to consider state-specific regulations that could affect how your finances are distributed. Unfortunately, Illinois is one of only 12 states (and the District of Columbia) that have an estate tax, also known as the death tax.
What does this extra tax mean for your estate?
How can you better prepare for this and other Illinois-specific legislation when building your estate plan?
Let’s find out.
Understanding The Illinois “Death” Tax
Yes, Illinois does levy an estate tax, and you must pay it if your estate is valued at $4 million or more. This rule even holds true for married couples. If one spouse passes away first, you can’t add any of their unused exemption to your estate. What does that actually mean? Let’s say your spouse’s estate was worth $3 million when they passed away, and yours is projected to be worth $5 million. The state doesn’t allow you to strategically deduct the “leftover” $1 million from your spouse to get you under the limits. But that’s not all. There’s another catch: you have to pay tax on the entire value of the estate, not just the amount that meets or exceeds the $4 million mark. This makes it far different than the typical marginal tax system to which we’re so accustomed. Your exact tax rate depends on the size of your estate, but the highest is 16%, and the lowest is 0.8%. To find out how much you will potentially have to pay, you can use the Illinois estate tax calculator.
How Does Illinois Estate Tax Differ from Federal Estate Tax?
One of the biggest differences between Illinois estate tax and federal estate tax is the exemption threshold and tax rates. Illinois imposes an estate tax on estates above a state-specific threshold, while the federal government exempts much larger estates before federal estate tax applies. Understanding these differences can help you plan strategically to reduce the value of your taxable estate while honoring your legacy goals.
Ways to Manage Your Estate
Give money to loved ones during your lifetime. Gifting allows you to see your wealth make a difference for family members, whether for education, a home, or other meaningful experiences, while reducing your estate.
Donate to charity. Charitable gifts can support causes you care about while potentially lowering your taxable estate. Work with your advisor to optimize the strategy.
Use an irrevocable trust. Assets placed in an irrevocable trust are generally removed from your taxable estate. Because the trust is typically fixed once established, careful planning is essential.
Balance spending with legacy goals. Consider how you can enjoy your wealth today while ensuring your estate reflects your long-term intentions.
Always coordinate with a financial advisor, tax professional, and estate planning attorney to develop a holistic, personalized strategy.
Remote Wills: Plan from Home
Some states now allow individuals to execute a will remotely, making it possible to create this important document from the comfort of your own home. A will lets you outline your wishes for your estate and designate who will carry them out, including an executor, guardians for minor children, and instructions for personal property. While witnesses and proper documentation are still required, remote execution provides a convenient option for those who may have difficulty visiting a legal office.
Review your will regularly with your financial advisor, estate attorney, or legal team to ensure it is thorough and avoids confusion or conflict. Estate planning can be complex, so professional guidance is essential.
Take a Holistic Approach to Your Estate Plan
No matter where you live, it is important to look at your estate plan as a whole. A comprehensive plan typically includes a will, updated beneficiaries and designations, powers of attorney, guardianship arrangements, medical directives, and potentially a trust.
Trusts offer several advantages. They provide legal protection for your assets, give flexibility in how assets are distributed over time so a young adult does not inherit a large sum all at once, and help streamline the transfer process. They often avoid probate and save time and money for your loved ones.
Ultimately, an estate plan should reflect your unique circumstances, goals, and wishes.
We’re Here to Assist You
Creating an estate is a culmination of all the financial milestones you’ve achieved through the decades, and it allows you to leave a legacy to improve the lives of your loved ones. Would you like to learn more about creating a thorough estate plan? Reach out today.
This commentary reflects the personal opinions, viewpoints, and analyses of The Dala Group, LLC employees providing such comments. It should not be regarded as a description of advisory services provided by The Dala Group, LLC or performance returns of any The Dala Group, LLC client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data, or any recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The Dala Group, LLC manages its clients’ accounts using various investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.