Surprise! Illinois Increases State Estate Tax Exemption

Posted By Jay Kaufman || 27-Jan-2012

For Clients, Advisors and Community.

Senate Bill 0397 was passed on December 16, 2011 as Public Law 97-0636. It provides mostly for technical changes in the Illinois Income Tax Law. At the end of the legislation it provides for an increase in the lifetime exclusion from the Illinois Estate Tax.

For individuals dying prior to 2012, the lifetime exclusion from the Illinois Estate Tax was $2,000,000. Thus, a couple could shelter $4,000,000 from the tax.

The change in the Illinois Estate Tax Exemption is recited on the last two pages of a 292 page statute. It provides that for individuals dying in 2012, the lifetime exclusion from the estate tax will be increased to $3,500,000 and will be increased to $4,000,000 for individuals dying on or after January 1, 2013. Thus, for this year, a couple can shelter $7,000,000 from the Illinois Estate Tax. (For reference purposes, for this year, each individual can shelter $5,000,000 from the Federal estate tax or $10,000,000 per couple). The fact that the Federal and state exemption limits are different is known as “decoupling”.

The legislation did not change the rates on the estate tax which range from 8% to 16%.

I am surprised that the General Assembly and the Governor have taken this step given the state’s precarious financial condition. Once would think that they would be looking for every revenue source they could.

I just returned from attending the University of Miami Law School’s Heckerling Institute on Estate Planning. Two themes were dominant in the presentations and workshops. The first is that the laws and regulations which govern most estate plans today are quite volatile and require regular attention and review. Hence, regular review of the estate plan is required.

Second, it is noteworthy that there is no gift tax in Illinois. Thus, a lifetime gift of property completely removes the property from the estate tax base for state estate tax purposes. This gives me the opportunity to remind our readers that there is an 11 month opportunity to make substantial gifts (up to $5,000,000) and completely avoid the estate tax (both state and Federal). Without action from Congress (in an election year!), the window will close on December 31, 2012. If you have thought of transferring a business interest or other large interest to your children, don’t wait.

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