How to Avoid Illinois Estate Tax [2023 Edition]

How to Avoid Illinois Estate Tax?

February 8, 2023

The Illinois estate tax rate follows a graduated scale as high as 16%, but it only hits estates worth over $4 million. If you want to leave your loved ones as much as possible, then estate planning pays off greatly. You also need to keep the federal estate tax in mind. Contact us if you need help with estate and trust tax preparation services and how to avoid the Illinois estate tax.

What Is the Estate Tax in Illinois?

If you are wealthy enough when you die, you might have to deal with the estate tax in Illinois. That means that your estate would pay taxes after you die but prior to your money being dispersed to your heirs. This is also known as a death tax, but it's different from an inheritance tax that recipients might get hit with after the fact.

Illinois Estate Tax Exemption

The rules for other states don't matter if you live and die in Illinois, as the estate tax threshold is set at $4 million. If your estate is worth less money than this, your estate will owe nothing in the event of your death. However, if your estate has more value than $4 million, then a progressive estate tax rate will tax some of your money prior to anything being dispersed to heirs.

Who Does the Illinois Estate Tax Apply to?

Estate taxes in Illinois apply to two different scenarios. The first are residents of the state who have an estate valued at more than $4 million. The second are nonresidents who have physical or real property in the state also valued at more than $4 million. Taxes on such assets must be paid before intended beneficiaries can get their inheritance.

What Is the Illinois Estate Tax Rate?

Before paying estate tax, it helps to know what it is going to be. The Illinois estate tax rate is on a graduated scale, and the top tax rate is 16%. You will only have taxes owed if your whole estate is over the threshold of $4 million. Using the right tax table can help with your estate planning. Then, you can know how much your estate would have to pay. When you know how much will be paid, you can better plan the execution of your estate.

Illinois Estate Tax Rates
Taxable Estate*	Base Taxes Paid	Marginal Rate	Rate Threshold**
$1 – $40,000	$0	0%	$0
$40,000 – $90,000	$0	0.8%	$40,000
$90,000 – $140,000	$400	1.6%	$90,000
$140,000 – $240,000	$1,200	2.4%	$140,000
$240,000 – $440,000	$3,600	3.2%	$240,000
$440,000 – $640,000	$10,000	4.0%	$440,000
$640,000 – $840,000	$18,000	4.8%	$640,000
$840,000 – $1.04 million	$27,600	5.6%	$840,000
$1.04 million – $1.54 million	$38,800	6.4%	$1.04 million
$1.54 million – $2.04 million	$70,800	7.2%	$1.54 million
$2.04 million – $2.54 million	$106,800	8.0%	$2.04 million
$2.54 million – $3.04 million	$146,800	8.8%	$2.54 million
$3.04 million – $3.54 million	$190,800	9.6%	$3.04 million
$3.54 million – $4.04 million	$238,800	10.4%	$3.54 million
$4.04 million – $5.04 million	$290,800	11.2%	$4.04 million
$5.04 million – $6.04 million	$402,800	12.0%	$5.04 million
$6.04 million – $7.04 million	$522,800	12.8%	$6.04 million
$7.04 million – $8.04 million	$650,800	13.6%	$7.04 million
$8.04 million – $9.04 million	$786,800	14.4%	$8.04 million
$9.04 million – $10.04 million	$903,800	15.2%	$9.04 million
$10.04 million and up	$1,082,800	16.0%	$10.04 million

*The taxable estate is the total above the exemption of $4 million.

**The rate threshold is the point at which the marginal estate tax rate goes into effect.

Note: The chart above shows no taxes owed on the first $40,000 of taxable income because of a system of tax credits from the state.

How Does the Illinois Estate Tax Differ from the Federal Estate Tax?

Estates are taxed by the state of Illinois and the federal government. Each has its own estate tax rate. Illinois taxes estates over $4 million with variable rates, and portability does not apply. Federal taxes are for estates over $11.18 million at a 40% rate although a surviving spouse might have portability options.

What Is Included in an Illinois Estate?

Remember, the estate tax only applies to estates worth over $4 million. This also applies to non-residents who own physical or real property in Illinois valued over $4 million. An estate would be taxed at 28.5%, while estates valued over $11.18 million are taxed at 40%.

Included in an Illinois estate are bank accounts, real estate, life insurance payouts, interests in business, and personal property such as cars, jewelry, art, and antiques. With that being said, there are ways to reduce or even eliminate the Illinois estate tax, such as gifting money, life insurance planning, and many other advanced gift and estate planning techniques.

The responsibility to locate all the assets in the estate is tasked to the executor of the estate. When assets value more than $4 million, the executor also needs to file an estate tax return with the state of Illinois. This is due within nine months of the death, even in the event of a federal estate tax return not being required.

How to Avoid the Illinois Estate Tax?

There are several ways to avoid paying the Illinois estate tax or lowering the Illinois tax. The first is making annual exclusion gifts where you gift as much as $15,000 per person per year to avoid the federal gift tax. Married couples can combine gifts to $30,000 per year.

Estate planning techniques can help you manage all of this. Advanced gifts are one thing you can plan on. Life insurance planning also proves effective in many cases.

Assets left to a civil union partner, surviving spouse, or charity are typically exempt from state estate tax. You can also just spend your assets while you're still alive. Alternatively, you can move to a state that doesn't have an estate tax and simply sell any estate holdings still in the state of Illinois.

FAQs about Illinois Estate Tax

Still, have questions? We have answers!

Is Illinois estate tax portable for married couples?

No. Illinois does not make the estate tax portable for a married couple, even though many other states and the federal government might.

Are estate tax and inheritance tax the same?

No. An inheritance tax takes place after the estate holdings are passed on to beneficiaries. Illinois doesn't even have one, but other states do that might apply in some circumstances.

When are estate taxes due?

All estate taxes are supposed to be paid within nine months of the death of the estate owner.

Who is responsible for filing an estate tax return and paying estate tax in Illinois?

Whoever is designated as the executor of the will holds the responsibility for ascertaining estate values and debts, filing the return, and paying taxes.

Illinois Estate Tax: the Bottom Line

Estate tax is a complicated thing to deal with, but you need to involve it in your planning. Whether you struggle with the Illinois estate tax exemption, the federal estate tax exemption, or both, our Chicago CPA firm can help guide you through future financial planning services and estate tax returns.

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