Planning for Estate Taxes
The primary purpose of estate planning is for one to provide their beneficiaries in Oswego with some measure of financial security upon their passing. That security may include money to help cover funeral expenses, funds to settle one’s liabilities, and assets to help build up their beneficiaries’ own personal fortunes. Passing on such assistance becomes difficult, however, if taxes eat up one’s estate assets.
Most people assume that there will be some expected tax liabilities against their estates; to that end, they are correct. Both the state of Illinois and the federal government impose estate taxes. However, with careful planning, they may be able to limit their tax liability.
The Federal and State Estate Tax Thresholds
One qualifies for an estate tax exemption at the state and federal levels. Per Forbes Magazine, the federal estate tax threshold for 2020 is $11.58 million; for Illinois residents, it is $4 million. That means that only those estates whose total taxable value exceeds those amounts will be subject to tax. For the state of Illinois, the maximum estate tax rate is currently 16%. At the federal level, it is 40%.
Taking Advantage of Estate Tax Portability
The federal government allows citizens to lessen their estate tax liability through a process known as portability. According to the Internal Revenue Service, one can file an estate tax return within nine months of their spouse’s death claiming portability. This allows them to claim the unused portion of their spouse’s estate tax exemption. If their spouse left them all their assets, those funds already pass tax-free thanks to the unlimited marital education. Thus, they can claim their spouse’s entire $11.58 million exemption and combine it with their own, protecting up to $23.16 million from tax.
Illinois does not offer residents the option of portability.