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In a surprise move at the end of 2011, the Illinois legislature amended the estate tax law to provide for additional benefits to the estates of Illinois decedents. Specifically, the Illinois estate tax exemption has been increased (from the previous exemption of $2 million) as follows:
- $3.5 million for the estates of individuals who die in 2012; and
- $4 million for the estates of individuals who die in 2013 and thereafter.
The Illinois tax rates on taxable estates continue to be as high as 16%—as indicated in the table below. However, the state allows a marital deduction (for Illinois estate tax purposes only) with respect to assets passing to certain qualifying trusts for the benefit of a surviving spouse.
Due to an inflation adjustment, the federal transfer tax exemption (for estate and gift tax purposes) has been increased to $5.12 million in 2012 (from $5 million in 2011). The top marginal estate and gift tax rate remains at 35% for 2012. Without further action by the U.S. Congress, the federal transfer tax exemption will drop to $1 million—and the top marginal rate will increase to 55%.
While the increased Illinois estate tax exemption will be beneficial for estates that do not exceed the new amount, there is only a minor benefit for estates that do exceed the exemption. Because of the current difference in the federal and Illinois estate tax exemptions, married couples domiciled in Illinois should consider revising their estate plans to take advantage of the Illinois marital deduction to defer payment of Illinois estate tax until the death of the surviving spouse. Otherwise, an estate plan that was designed to fully utilize only the federal estate tax exemption could inadvertently cause up to $364,245 of Illinois estate tax when the first spouse dies.
Illinois Estate Tax Table
The following table provides a list of the brackets and the related incremental tax rates in connection with the 2012 Illinois estate tax.
|
Adjusted Taxable Estate* |
Tax on Bracket Amount |
Tax Rate on Excess over Bracket Amount |
| $940,000 | $33,200 | 5.6% |
| $1,040,000 | $38,800 | 6.4% |
| $1,540,000 | $70,800 | 7.2% |
| $2,040,000 | $106,800 | 8.0% |
| $2,540,000 | $146,800 | 8.8% |
| $3,040,000 | $190,800 | 9.6% |
| $3,540,000 | $238,800 | 10.4% |
| $4,040,000 | $290,800 | 11.2% |
| $5,040,000 | $402,800 | 12.0% |
| $6,040,000 | $522,800 | 12.8% |
| $7,040,000 | $650,800 | 13.6% |
| $8,040,000 | $786,800 | 14.4% |
| $9,040,000 | $930,800 | 15.2% |
| $10,040,000 | $1,082,800 | 16.0% |
*The decedent’s taxable estate for federal estate tax purposes, reduced by $60,000.
Applying the 2012 Illinois Estate Tax
The table below illustrates the amount of Illinois estate tax and the effective estate tax rate for several hypothetical estates of Illinois decedents.
| Taxable Estate |
Illinois Estate Tax |
Effective Tax Rate |
| $2,000,000 | $0 | 0% |
| $3,500,000 | $0 | 0% |
| $5,000,000 | $352,158 | 7.0% |
| $5,120,000 | $364,245 | 7.1% |
| $10,000,000 | $926,923 | 9.3% |
| $20,000,000 | $2,298,965 | 11.5% |
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