Current Federal and Illinois Estate Taxes
Chicago Attorneys - Jostock & Jostock, P.C.

Current Federal and Illinois Estate Taxes

October 2011
By: Nicholas P. Hoeft

Federal: The Tax Relief, Unemployment Insurance, Reauthorization, and Jobs Creation Act of 2010 was passed by the United States Congress on December 16, 2010 and was signed into law by President Obama on December 17, 2010. Pursuant to the Act, the following changes to the estate and gift taxes were introduced:

  • For decedents dying in 2011 and 2012, the amount that can pass upon a decedent’s death free of federal estate tax was increased to $5 million with an inflation adjustment for 2012.
  • The amount that a donor can gift in excess of the annual exclusion amount of $13,000 per donee during his or her lifetime without incurring a gift tax was increased to $5 million.
  • The amount that a donor or a decedent can pass outright or in trust to grandchildren or other descendants free of generation-skipping transfer tax was increased to $5 million in 2011 and 2012.
  • The federal estate, gift and generation-skipping transfer tax rates were reduced to 35% for decedents dying in 2011 and 2012.
  • Estate tax exemption portability was created, which permits the surviving spouse to take the unused portion of the deceased spouse’s federal exemption and aggregate it with the surviving spouse’s unused portion. The estate of a deceased spouse can transfer to the surviving spouse any portion of the federal estate tax exemption that it does not use. The surviving spouse’s estate can then add that amount to the exemption it is entitled to, increasing the total amount that can be passed on to heirs tax free on the second to die’s death. To use the exemption portability, the first spouse to die’s estate representative must elect to use portability on the federal estate tax return and file the federal 706 return even if no estate tax is due and the return is not otherwise required to be filed.

On January 1, 2013, the federal estate tax amount and rates under the Tax Relief, Unemployment Insurance, Reauthorization, and Jobs Creation Act of 2010 will automatically sunset and revert to the 2001 exemption levels adjusted for inflation.

  • For decedents dying in 2013 and beyond, the amount that can pass upon a decedent’s death free of federal estate tax will be reduced to $1 million with an inflation adjustment.
  • The amount that a donor can gift in excess of the annual exclusion amount of $13,000 per done (adjusted for inflation in 2011 and 2012) during his or her lifetime without incurring a gift tax will be reduced to $1 million.
  • The amount that a donor or a decedent can pass outright or in trust to grandchildren or other descendants free of generation-skipping transfer tax will be reduced to $1 million with an inflation adjustment.
  • The federal estate, gift and generation-skipping transfer tax rates were increased to 55% (60% in some instances).

Obama’s budget proposal for 2012, proposes to have the 2013 federal estate tax exemption amount set at $3.5 million, the lifetime gift tax exemption amount set at $1 million and generation-skipping transfer tax exemption at $3.5 million. His proposal would set the federal estate, gift and generation-skipping transfer tax rates to 45%.

Illinois: Public Act 096-1496 was passed on January 12, 2011 by the Illinois Congress and was signed into law by Governor Quinn effective January 1, 2011. Pursuant to the Act, the following changes to the estate and generation-skipping taxes were introduced:

  • For decedents dying in 2011 and 2012, the amount that can pass upon a decedent’s death free of Illinois estate tax was set at $2 million.
  • The Act allows for marital and charitable deductions as well as deductions for expenses and taxes.
  • Unlike the Federal Act, the Illinois Act does not sunset and will continue in full force through 2013 and beyond.
  • An Illinois decedent who dies in 2011 and 2012 with a $5 million estate would not pay any federal estate taxes, but will have to pay Illinois estate taxes on $3 million dollars. An Illinois decedent who dies in 2013 or beyond with a $5 million estate would pay federal estate taxes on $4 million, but would only pay Illinois estate taxes on $3 million.
Federal Estate Tax Rates – 2011 and 2012
Estate Amount Exceeding: Up to: Is taxed at a rate of:
$5,000,000+ Infinite 35%

 

Federal Estate Tax Rates – 2013 and Beyond
Estate Amount Exceeding: Up to: Is taxed at a rate of:
$1,000,000* $1,250,000 41%
$1,250,000* $1,500,000 43%
$1,500,000* $2,000,000 45%
$2,000,000* $2,500,000 49%
$2,500,000* $3,000,000 50%
$3,000,000* $10,000,000 55%
$10,000,000* $17,184,000 60%
$17,184,000+* Infinite 55%

*Adjusted for inflation since 2001

Please contact Nicholas P. Hoeft at Jostock & Jostock, P.C. with any questions.

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