Overview of Illinois Estate Tax Laws

Understanding How Illinois Estate Taxes Affect an Estate

Illinois is one of a handful of states that collects an estate tax at the state level. The estates of Illinois residents, as well as nonresidents who own real estate or tangible personal property located in Illinois, are subject to this tax under certain guidelines.

 

01
Have the Illinois Estate Tax Rules Changed Over the Years?

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The Illinois estate tax exemption—the amount of value of each estate that's tax-free—was $2 million in 2009. Only estates valued at more than $2 million were subject to an estate tax on the balance of the value over this threshold. 

The Illinois estate tax was repealed in 2010 due to changes made that year to federal estate tax laws. Then the Illinois legislature acted in 2011 to reinstate the state estate tax with the old $2 million exemption amount. In December 2011, the state acted to raise the estate tax exemption to $3.5 million for 2012, then to $4 million for 2013. 

The Illinois exemption remains at $4 million as of 2018. Estates are valued after all applicable tax deductions have been made, such as costs associated with settling the estate.

02
Are Transfers to Surviving Spouses Taxable?

Outright transfers to surviving spouses are not taxable in Illinois, nor are transfers to civil union partners. But the estate tax exemption is not portable in Illinois as it is at the federal level.

Portability means that a surviving spouse cannot claim any unused portion of his spouse's exemption and add it to his own to pass assets on to his own beneficiaries tax-free. The same $4 million limit applies to each spouse's estate, even after the surviving spouse has inherited from the deceased and presumably has a larger estate to distribute. 

For married couples who have used AB Trust planning to reduce their federal estate tax bill, an Illinois death tax might be due on the B Trust after the first spouse's death due to the gap between the Illinois exemption of $4 million and the federal exemption, which is $11.18 million as of 2018.

Nonetheless, a married decedent's estate can make an election to treat a trust of which the surviving spouse is the sole beneficiary as "qualified terminable interest property" (QTIP) for purposes of calculating the Illinois estate tax.

Married Illinois residents can defer payment of both Illinois and federal death taxes until after the death of the surviving spouse using ABC Trust planning. 

03
When Are the Illinois Estate Tax Return and Tax Payment Due?

An Illinois estate tax return must be filed and any estate tax that's due must be paid within nine months after the decedent's date of death. You must file a federal estate tax return along with the state estate tax return even if the estate does not owe a federal estate tax. You must include all schedules, appraisals, and attachments that would go with the federal return, although you don't have to actually file the federal return with the IRS. 

You can request an extension of time to file the Illinois estate tax return and related forms and to pay any tax due, but interest on the amount of tax owed will accrue during the extension period.

04
Where Should You File the Illinois Tax Return and Make the Tax Payment?

For Cook, DuPage, Lake, and McHenry Counties, file the original of the return with:

Office of the Attorney General

Revenue Litigation Bureau
100 West Randolph Street
13th Floor
Chicago, IL 60601

For all other counties, file the original of the return with:

Office of the Attorney General
Revenue Litigation Bureau
500 South Second Street
Springfield, IL 62706

By mail or in person:

Illinois State Treasurer
Estate Tax Division
400 West Monroe, Suite 401
Springfield, IL 62704

In person:

Illinois State Treasurer
100 West Randolph Street
Suite 15-600
Chicago, IL 60601

As of July 1, 2012, all payments must be made to the Illinois State Treasurer, not to the County Treasurer. 

05
How Is the Illinois Estate Tax Calculated?

For purposes of determining the value of an estate, assets include all those owned solely in the name of the decedent. Only the share of the value of her ownership interest is included if the decedent owned property with someone else, except for property held in joint tenancy with someone other than the deceased's spouse. In this case, the full value is ascribed to the estate, less the other owner's actual financial contributions.  

The Illinois estate tax is then determined by using the interrelated calculation. The tax base will be calculated assuming all assets are located within Illinois for both resident and nonresident decedents. The percentage of Illinois assets to total assets is then computed with the percentage applied to the tax base for apportionment purposes to determine the amount of Illinois estate tax due.

NOTE:

State laws change frequently, and the following information might not reflect recent changes. For current tax or legal advice, please consult with an accountant or an attorney. The information contained in this article is not tax or legal advice and it is not a substitute for tax or legal advice.