There are 12 states in the union have state level estate taxes, and there is an estate tax that is specific to Washington, D.C. As luck would have it, Illinois is one of these 12 states. In this post, we will provide an overview of the state level estate tax parameters, including the 2022 Illinois estate tax exclusion.
Federal Estate and Gift Taxes
Before we focus on the state level estate tax, we should touch upon the federal tax parameters. This tax carries a forty percent rate, so it can take a heavy toll on your legacy.
Fortunately, a small percentage of people are exposed to the federal tax, because it carries an $12.06 million exclusion in 2022.
You can transfer this amount tax-free before the estate tax would be applicable on the remainder. However, there is an unlimited marital deduction. As long as you are married to an American citizen, you can transfer any amount of property to your spouse tax-free.
On the subject of spouses, the estate tax exclusion has been portable since 2011. In this context, the term refers to the ability of a surviving spouse to use the exclusion that was allotted to their deceased spouse.
Lifetime gift giving would naturally enter your mind as a way to sidestep the tax, and people used to be able to take advantage of this approach back in the day. However, a gift tax has been in place continually since 1932.
The federal estate tax and the gift tax are unified under the tax code, so the exclusion is a unified exclusion. It applies to your estate and large lifetime gifts that you give while you are living.
In addition to this unified exclusion, there is a $16,000 per person annual exclusion. You can give this much to any number of people tax-free each year without using any of your multimillion-dollar unified exclusion.
Illinois Estate Tax
The state level estate tax exclusion is lower than the federal exclusion, so you could be exposed to the Illinois tax even if you are federally exempt. In 2022, the state-level estate tax exclusion in our state is $4 million. Illinois has a graduated rate that starts at .8 percent, and it maxes out at 16 percent.
We should point out the fact that the estate tax in any of the other 11 states could apply to your estate if you own valuable property in one of them. It would be applicable if the value of the property exceeds the exclusion in that state. In Massachusetts and Oregon, the exclusions are just $1 million.
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