Estate, Gift & Trust Conference-Kohn

Kohn - IL Estate Tax

Pdf Summary

The presentation explains Illinois estate tax as a separate, state-level tax system that is decoupled from the federal estate tax. Illinois uses a $4 million threshold, but this is not a true exemption; instead, it determines whether and how much tax is due. Because the threshold is not indexed for inflation and the rules rely on older federal concepts, estate planning can be complex.<br /><br />Illinois calculates tax using two methods and the estate pays the lower result. Computation A is a federal-style calculation using current federal rules but with Illinois’ $4 million exemption and an addback for prior taxable gifts. Computation B uses a pre-2001 state death tax credit table with no prior gift addback and a $60,000 reduction to the taxable estate. An Illinois Attorney General calculator is commonly used because the calculation can be circular.<br /><br />The slides emphasize that lifetime gifts and estate size can affect the tax in non-intuitive ways. Average tax rates decline as estates get larger, so families just above the threshold may experience a relatively high burden.<br /><br />The presentation also covers who is subject to the tax: Illinois residents are taxed on most assets included in the federal gross estate, while nonresidents are taxed only on Illinois real estate and tangible personal property. Domicile is key for residency.<br /><br />For married couples, Illinois QTIP and related marital planning can defer Illinois estate tax until the second death, but may come with tradeoffs such as loss of basis step-up and loss of control. A more complex three-trust structure may be used to coordinate federal and Illinois tax planning.

Keywords

Illinois estate tax

state-level tax

federal estate tax decoupling

$4 million threshold

estate planning

tax computation methods

lifetime gifts

nonresident taxation

marital planning

QTIP trust