Estate Planning for the New Year

estate planning for the new year, Illinois estate plan, Naperville estate planning attorneys, intra-family loans, taxable gifts, gift trusts, annual exclusion giftsWith the New Year just around the corner, there are several important factors to consider regarding your Illinois estate plan.

Transfer Tax Exemption

The transfer tax is imposed on property transfers (i.e., transferring title to real estate or a beneficial interest in real property). In 2015, the amount that individuals can transfer by gift or bequeath in a will without being subject to federal transfer taxes will increase from $5,340,000 to $5,430,000. (Note that the maximum federal estate tax rate is 40 percent.)

However, Illinois imposes an estate tax once the decedent’s estate exceeds $4,000,000. The state’s estate tax ranges from 8 to 16 percent, and any Illinois estate tax paid can be deducted for federal estate tax purposes. Both federal and state law allow for a marital deduction for assets that pass to a spouse  and for qualifying trusts that benefit a surviving spouse.

Annual Exclusion Gifts (Federal Law)

For 2014 and 2015, you can make an unlimited number of gifts up to $14,000 per recipient (those gifts are considered per calendar year). This is a powerful estate planning technique, because it allows you to remove the gift and any subsequent income from your estate without having to pay a gift tax or use the transfer tax exemption. Note that if you do not use your annual exclusions by the end of the year then you lose that balance. The exclusions cannot be carried over into the next calendar year. Also note that tuition and medical gifts are exempted from the annual exclusion. You can make unlimited tuition payments on behalf of someone else if you pay the school directly. Similarly, you can pay someone else’s medical bill if you pay the health care provider directly.

Gift Trusts

If you do not want to make an outright gift, you can create a gift trust. For example, under a grantor retained annuity trust, the grantor pays the taxes on the trust income. This is another way to transfer assets without them being subject to gift or estate taxes. Another option is a charitable lead trust, which reduces the taxable income by first making charitable donations.

Taxable Gifts

Federal law imposes a 40 percent estate tax on certain estates as well as a 40 percent tax on certain gifts. While Illinois does impose an estate tax, state law does not impose a gift tax (meaning that lifetime transfers are not subject to a gift tax).

Intra-family Loans

An intra-family loan is a loan from one family member to another. If implemented correctly, this can be another way to transfer assets free of estate or gift taxes.

Consult an Illinois Estate Planning Attorney

If you are ready to begin your 2015 estate planning, our Naperville estate planning attorneys can help you draft a customized estate plan that protects your family’s financial future. Contact us today for a consultation. We can assist those in the Naperville area.