2. And if you’re actually subject to either the Illinois or federal estate tax, you should be getting your tax advice from a tax expert, not this column. So if you have an $18 million estate, you can gradually pass on your assets to your loved ones until the net value of your estate is less than (or equal to) $11.4 million.

And if you’re actually subject to either the Illinois or federal estate tax, you should be getting your tax advice from a tax expert, not this column. John D. and Catherine T. MacArthur Foundation. This partial Illinois QTIP election is expressly authorized under 35 ILCS 405/2(b-1).16 As a result of the partial Illinois QTIP election, there is zero estate tax owed on H's death for both federal and Illinois purposes. H and W are married and are Illinois residents. Indeed, any trust that is QTIP eligible provides post-death flexibility to use partial federal or Illinois QTIP elections. Email: [email protected] The bypass trust will not qualify for partial Illinois QTIP treatment. Life insurance proceeds generally aren’t taxable. All states had estate taxes, because they could assess up to the federal credit limits to maximize state revenue without increasing the total tax collected on estates. That lifetime income interest and restrictions on principal distributions qualifies for QTIP treatment. The Economic Growth and Tax Relief Reconciliation Act of 2001, Pub L No 107-16, 107th Cong, 1st Sess (2001), 115 Stat 38 (hereafter "EGTRRA"). Second marriages, children from the first marriage, and other factors can come into play. 2. What are the implications of decoupling Illinois' estate tax from the federal exclusion, so that any taxable estate over $2 million generates Illinois estate tax? The calculated state death tax credit amount arbitrarily uses a $2 million exclusion and not a $5 million exclusion. All of the assets will pass to Clark free and clear of estate tax due to the Unlimited Marital Deduction, which allows a surviving spouse to inherit an unlimited amount of assets from the other spouse without paying estate tax. There are risks with this approach. How does the new concept of "portability" affect planning? In this article we will explain estate tax and discuss some tools used to avoid it or minimize it. This tax clause funds the bypass trust with the greatest amount that will not generate federal estate tax (under Tax Act 2010 that amount would be $5 million). Through a QPRT, you can freeze your primary residence and/or vacation home’s market value and avoid paying the gift tax (as long as you haven’t exceeded the lifetime limit for taxable gifts). For married clients that are not worried about estate tax avoidance we often suggest one joint revocable living trust as the primary vehicle for their estate. H and W hold all assets in joint tenancy to avoid attorney fees and probate costs. As the Illinois estate tax is tied to the federal estate tax law, which was repealed until the start of 2011, the initial exemption will fall to $1 million if another law is not enacted.

Illinois, which already set its own exemption level of $4 million, was not affected. Many states, including Illinois, directly linked their estate tax statute to the maximum allowable federal credit. As long as the trusts are QTIP eligible, the often-used marital deduction/bypass trust arrangement should minimize federal and Illinois estate tax under whatever tax law exclusion applies. The $5 million federal taxable estate is covered by the 2011 exclusion of $5 million. IRC § 2041. Gift Assets. Submitted by Anonymous (not verified) on Sun, 02/23/2020 - 14:54, Submitted by Anonymous (not verified) on Tue, 12/17/2019 - 11:49. Thank you for viewing this Illinois Bar Journal article. Let’s say that Clark Kent and Lois Lane are married, and Lois, through years of work as an intrepid reporter, has accumulated an estate with a value of $8 million. The following question was submitted to John Roska, an attorney/writer whose weekly newspaper column, "The Law Q&A," ran in the Champaign News Gazette. Thank you for your feedback, we are glad you found the information useful! If one spouse dies during 2011 or 2012 with unused estate tax exclusion, the surviving spouse can use the unused exclusion of the first spouse to die to make lifetime gifts during 2011 and 2012 rather than having to wait to use the first spouse's unused exclusion for future estate taxes of the second spouse. How to Minimize Death Taxes. Contingent QTIP trust - Clayton trust. Plus, you’ll score a tax deduction. That doesnt mean the estate will actually owe tax, because tax deductions may reduce the amount of the taxable estate and reduce or eliminate any tax.
Illinois and several other states chose to decouple from federal tax policy so that their estate taxes remained in place.

Here are five ways that the super rich can shield their estates from the estate tax.
The QTIP for flexibility and control is the most popular. At the first spouse's death, the trustee is directed to divide the trust into separate shares to use the federal estate tax exclusion, elect partial QTIP for Illinois estate tax, and elect QTIP as needed for the federal marital deduction. We simplify the law so you can get justice. The State raised the exemption from $1 million to $1.5 million in 2004, then to $2 million in 2006, to $3.5 million in 2012 and finally to $4 million in 2013. While it’s not the worst place for estate taxes in the United States, it’s still an expensive place to settle an estate. Access to Illinois Attorney General 2012 Decedents Estate Tax Calculator Example 5: Outright marital/bypass trust - lesser of federal or Illinois exclusion. Thus, the bypass trust can be triggered post death to use the federal estate tax exclusion of the first spouse to die. A third party trustee can have broad discretionary rights to distribute trust principal to the surviving spouse without causing the trust assets to be includible in the surviving spouse's taxable estate. Now state estate taxes are deducted from the estate before federal estate taxes are applied, similar to the federal income tax deduction for state income taxes. Something went wrong while submitting the form :(, Article written by Attorney Kevin O'Flaherty. Prior to 2001, the federal government offered an estate tax credit for amounts paid for state estate taxes up to certain limits. While the estate tax has brought in an average of $282 million per year during the last decade, it is one of the State’s more volatile sources of revenue. Thank you for your question. So how do AB Trusts work? What You Need to Know About Illinois Estate Taxes . Illinois does not have an inheritance tax, which is levied on assets received by the inheritors of an estate. Same facts as Example 2, except H's executor makes an Illinois-only QTIP election on 60 percent of the assets of the bypass trust. See Kolasa, 97 Ill Bar J at 615 (cited in note 11). Illinois does not have an inheritance tax, which is levied on assets received by the inheritors of an estate. [1] Spending proposed in the capital budget includes funding from the State, grants from the federal government and local matching funds.

The only aspect of its estate tax that Illinois has adjusted since the phase-out of the federal credit is the exemption amount.

The trust is irrevocable because in the future, you wouldn’t be able to make adjustments to it without the consent of the trust’s beneficiary. Our Iowa & Illinois Attorneys are committed to providing exceptional client service in a cost-effective manner in the areas of, no need to leave your home to receive legal consultations and services - Call or click to learn more about phone and video conferencing with our attorneys, How To Collect A Debt In Indiana | Collecting Accounts Receivable, Voter Rights For Mail-In (Absentee) And In-Person Voting, Part 2.

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If the surviving spouse is the trustee of the bypass trust, principal distributions must be limited to an ascertainable standard relating to health, support, maintenance, or education of the surviving spouse.9 If a third party is trustee over the principal distributions of the bypass trust, the right to distribute principal can be broadened beyond the ascertainable standard limitation. Because of the bracket structure, the first $4,040,000 of an estate’s net worth pays no tax, while net assets above $14,040,000 are taxed at the maximum rate of 16%. A contingent QTIP trust (sometimes called a "Clayton" trust) is allowed under regulation.22 In a Clayton trust the personal representative can elect a portion of trust assets to be used to give the surviving spouse a lifetime income interest. Estate plans where the spouse is not the sole beneficiary need to be reviewed. The General Assembly enacted an approximately $49.2 billion capital budget on May 24, 2020.

1. The estate planning documents establish a "marital deduction/bypass trust" arrangement. Does Illinois have an inheritance / estate tax? And if the estate tax exemption reverts to its 2003 level of $1 million in 2013, the 99 percent can benefit by doing some estate planning, too. For example, all assets left to a surviving spouse or civil union partner are not subject to Illinois estate tax. But if you inherit millions of dollars and you’re worried about dealing with the death tax, you can get around it and lower your tax burden if you plan ahead and make the most of some of the tax loopholes that benefit the wealthy. Under portability, for federal estate tax purposes W has her $5 million exclusion plus H's $5 million exclusion for a total exclusion of $10 million.