Donald M. Thompson - Wills, Trusts, and Estate Planning

WILLS, TRUSTS, AND ESTATE PLANNING

Illinois Estate Tax

The Federal estate tax used to allow a credit for state death taxes. The Illinois estate tax was the amount of the credit allowed under Federal law. Under this scheme the total Illinois and Federal tax was the same as the total Federal tax before the credit.

The Federal law has been changed and the credit for the state death taxes is being phased out beginning in 2002. Because of this, as of January 1, 2003 Illinois has a new estate tax law. This provides that the Illinois estate tax is the amount that would have been allowed as a credit for state death taxes under the Federal tax before 2002. The net effect is a substantial increase in the total of Illinois and Federal estate taxes.

The pre-2002 Federal credit was based on the adjusted taxable estate which is the taxable estate less $60,000. The Federal state death tax credit schedule was (and thus the Illinois estate tax schedule is):

Adjusted Taxable Estate
Credit
Over
But Not Over
Credit Is Lower Amount
Plus the % of the Excess
$40,000
$ 90,000
$0
0.8
90,000
140,000
400
1.6
140,000
240,000
1,200
2.4
240,000
440,000
3,600
3.2
440,000
640,000
10,000
4.0
640,000
840,000
18,000
4.8
840,000
1,040,000
27,600
4.8
1,040,000
1,540,000
38,800
6.4
1,540,000
2,040,000
70,800
7.2
2,040,000
2,540,000
106,800
8.0
2,540,000
3,040,000
146,800
8.8
3,040,000
3,540,000
190,800
9.6
3,540,000
4,040,000
238,800
10.4
4,040,000
5,040,000
290,800
11.2
5,040,000
6,040,000
402,800
12.0
6,040,000
7,040,000
522,800
12.8
7,040,000
8,040,000
650,800
13.6
8,040,000
9,040,000
786,800
14.4
9,040,000
10,040,000
930,800
15.2
10,040,000
-----
1,082,800
16.0

The Illinois tax is based on the Federal adjusted taxable estate and Illinois adopts the same exclusion amounts as Federal law. These exclusion amounts are scheduled to rise as follows:

2003

$1,000,000

2004-2005

$1,500,000

2006 and after

$2,000,000

The Federal exclusion amount rises to $3,500,000 in 2009, but Illinois limits the amount to $2,000,000.

Many estate plans avoid federal estate tax by saying the marital deduction gift is the least amount that will result in no federal tax. Thus the marital gift is everything over the exclusion amount. In 2009 the federal and Illinois exclusion amounts will be different so this type of estate plan will result in no federal tax, but some Illinois tax. This could be avoided by increasing the amount of the marital deduction gift to the least amount that will result in no federal or Illinois tax.

In 2010 the Federal tax expires and so does the Illinois tax. If Congress passes no further legislation the Federal estate tax then comes back into effect in 2011 as it was in 2001 with the same tax rates and $1,000,000 exclusion amount applicable to that year. If that happens, the Illinois law provides that it reverts to what it was then when it was the amount of the federal credit for state death taxes.

Unlike the Federal tax, the Illinois tax does not apply to lifetime gifts.

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Illinois Estate Tax Attorney Donald M. Thompson * 55 W. Monroe #3950; Chicago, IL 60603
Ph: 312-782-0844 * Fax: 312-201-1436 * Email: donthompsonlaw@sbcglobal.net