Do I Need to Address Estate Taxes in My Estate Plan?

When considering your estate plan, it is essential to understand the potential impact of estate taxes and other types of taxes that may apply when you transfer your assets to others. Estate taxes, which are sometimes referred to as death taxes or inheritance taxes, may apply when a person’s assets are transferred to their beneficiaries after they pass away. For high-value estates, these taxes can be a significant issue that can greatly reduce the amount of wealth that is ultimately passed on to beneficiaries. By understanding when estate taxes may apply and the tax planning strategies that may be available, you can make decisions about how to preserve your assets and ensure that they can be passed on to your heirs.

Estate Taxes in Illinois

In Illinois, there is both a federal estate tax and a state estate tax that may apply to your estate. The federal estate tax is imposed on estates with a total value exceeding a certain threshold, which is adjusted each year. In 2023, the federal estate tax threshold is $12.92 million per individual. If the total value of your estate is above this threshold, the amount that exceeds the threshold may be subject to federal estate tax.

Additionally, Illinois is one of a few states that impose their own estate taxes. The Illinois estate tax applies to estates with a value exceeding $4 million. If the total value of the assets you own exceeds this threshold, your estate may be subject to Illinois estate taxes, even if federal estate taxes may not apply.

It is worth noting that high tax rates may apply for estate taxes, and they can range from 18 percent to 40 percent depending on the total value of the taxable estate. These taxes can significantly impact the amount of wealth that is passed on to your loved ones. Because of this, it may be a good idea to consider strategies for reducing the taxable value of your estate and ensuring that assets can be transferred to your heirs while minimizing the amount of taxes that may apply.

Planning for Estate Taxes

Here are a few strategies that may help you minimize federal and state estate taxes:

• Gifts: Making gifts during your lifetime can reduce the value of your estate and, consequently, the amount subject to estate tax. While gift taxes may apply to some gifts, there is an annual gift tax exclusion that allows a certain amount to be given to individuals each year without incurring gift taxes. In 2023, the gift tax exclusion amount is $17,000 per recipient. This means that a single person may gift up to $17,000 to each of their children or other loved ones tax-free. A married couple can make gifts of up to $34,000 per recipient without being required to pay gift taxes.
• Trusts: Certain types of trusts, such as irrevocable life insurance trusts and charitable remainder trusts, can help reduce estate taxes by removing assets from your taxable estate.
• Estate tax deductions: There are certain deductions that can be taken to reduce the gross value of an estate. A marital deduction will be available for assets that pass outright to a person’s spouse. Mortgages, debts, and estate administration expenses may also be deducted.

Contact Our DuPage County Estate Tax Planning Attorney

If you have questions about estate taxes, or if you need to determine the role that these or other types of taxes may play in your estate plan, contact the experienced Naperville tax planning lawyer at Gierach Law Firm. We understand the complexities of estate taxes in Illinois, and we can help you determine the best strategies for minimizing estate taxes and ensuring that you can preserve your estate and pass your assets on to your loved ones. Call us at 630-756-1160 to schedule a consultation today. 

Sources:

https://illinoisattorneygeneral.goPage-Attachments/Instruction_Fact_St2022.pdf