You have spent most of your life making sure your family is well taken care of, but how well have you prepared them for life when you are gone?
No one wants to think about death, but did you know that failure to plan now could lead to big tax headaches for your family after your death?
This guide is designed to give you a very general understanding of estate tax laws, and to help you learn why it is important to seek the advice of attorneys and estate planners in order to properly plan for the future.
When a person dies, the property he or she leaves behind is subject to what is known as an Estate Tax. This includes real estate, life insurance policies, retirement plans, stocks, bonds, trusts, and any personal effects. Both the United States and the State of Illinois impose this tax.
In Illinois, the Attorney General's office administers the tax. This tax is imposed on the fair market value of the deceased's estate as of the time of death. The taxable value of the estate does not include any expenses or deductions, such as funeral bills, attorney, executor, accountant or administrator fees, or npersonal debts. Amounts passed on to a spouse or charity are exempt.
It's a progressive tax, meaning the larger the estate, the higher the rate of tax. As of 1998, you would not have to pay taxes on the first $625,000 of your estate. That exemption will increase annually until it hits $1,000,000 in the year 2002 and $3,500,000 in 2009. Numerous changes were enacted by Congress in 2001 which effect both the Illinois and Federal Estate Taxes.
The tax is due nine months after death. That period can be extended with good cause. For example, if the estate includes a closely-held business, like a family farm, the tax can be paid in installments over 15 years.
The Illinois Estate Tax Return is Form 700 (copies are available at the Illinois Attorney General's Office). It should be filed with the county treasurer in the county where the deceased resided. A copy of the return should also be filed with the Attorney General's Office.
No, the taxes are due on the estate, not on the recipient or beneficiary. The amount a beneficiary receives will be minus any taxes due. Your will or trust can also control which parts of your estate bear the tax burden.
Real estate should be appraised at its fair market value on the date of death. If the real estate was sold or purchased just prior to or shortly after the death, the sale price should be used. Stocks, bonds, and other holdings are valued at their traded prices at or near the date of death. Personal effects, such as jewelry, machinery, livestock, etc. are generally appraised if they have significant value.
It is. Family farms are eligible to use a special farm value for determining the Federal and Illinois Estate Taxes. That value is determined by a formula which is generally a quarter to half of fair market value. In order to qualify for this special farm value, the land must have been actually farmed or managed by the deceased or a family member. The property must be passed to a family member and be retained as a family farm for ten years.
The federal government imposes a gift tax, but the State of Illinois does not. Again, your total lifetime exemption from this tax is $625,000 as of 1998 up to $1,000,000 by 2002. You also have an annual gift exclusion of $11,000 per year per person. So for example, if you gave your daughter $8,000 in 2003 and your son $10,000 in that same year, you would not pay any tax on those gifts. However, if you gave your daughter $1,051,000 in 2003, a portion of that would be taxable. Tax would be imposed on $40,000: $1,051,000 - ($11,000 annual gift tax exclusion + $1,000,000 lifetime gift and estate tax exemption) = $40,000. PLEASE NOTE: There is only one lifetime exemption for both taxes. There is not one for gift tax and then another for estate tax.
For more information about the Illinois Estate Tax, contact the Illinois Attorney General's Office Estate Tax section:
500 South Second Street
Springfield, Illinois 62706
1-217-524-5095
TTY: 1-877-844-5461
100 West Randolph Street
Chicago, Illinois 60601
1-312-814-2491
TTY: 1-800-964-3013
This material available in alternate formats upon request
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