Estate, Gift & Trust Conference - Virtual-Kohn

Kohn - IL Estate Tax

Pdf Summary

The presentation explains Illinois estate tax as a separate state 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 tax is due and how much. Because the threshold is not indexed and the rules rely on older federal concepts, planning can be complex.<br /><br />Illinois estate tax is calculated using two methods, and the estate pays the lesser amount:<br /><br />1. Computation A: A federal-style calculation using Illinois’ $4 million exemption and including prior taxable gifts.<br />2. Computation B: A pre-2001 state death tax credit table with no prior-gift add-back and a $60,000 reduction from the tentative taxable estate.<br /><br />Because of this two-track system and its circular calculations, Illinois provides an estate tax calculator, and Form 700 directs filers to use it.<br /><br />The slides emphasize that prior lifetime gifts can reduce Illinois estate tax in some cases, but not always eliminate it. Average tax rates generally decline as estates become larger, meaning estates just above the threshold can face relatively high effective rates.<br /><br />The presentation also covers who is subject to the tax:<br />- Illinois residents are taxed on assets included in their federal gross estate, except out-of-state real estate and tangible personal property.<br />- Nonresidents are taxed only on Illinois-situs real estate and tangible personal property.<br />Residency is generally based on domicile.<br /><br />For property location, Illinois may “look through” certain entities. For example, revocable trusts holding real estate and LLCs or partnerships may be treated differently depending on the asset type and legal structure.<br /><br />Finally, the presentation discusses planning for married couples, especially Illinois QTIP and three-trust structures, which can defer Illinois estate tax until the second death but may involve tradeoffs, such as limits on basis step-up.

Keywords

Illinois estate tax

state tax threshold

federal decoupling

Form 700

estate tax calculator

prior taxable gifts

nonresident taxation

domicile residency

QTIP trust

three-trust structure