Recent Changes to Illinois Estate Tax Laws 2021

This article will discuss recent changes to Illinois estate tax laws for the year 2021. We will answer the following questions:

• What is probate?

• What is estate planning?
• What is an estate tax?
• What are the recent changes to estate tax?
• What can I do to minimize my estate tax payment?

What is probate?

Before we can discuss estate tax and estate planning, we need to understand probate. Probate is the statutory process by which your estate is disposed of in the event that a court must administrate your will or if you did not have a will at the time of your passing. While there is a bundle of assets that are not subject to the probate process (e.g. assets currently being held in a trust, retirement benefits you may have garnered during your career, and property being held in a joint tenancy), a significant portion of your estate is likely to qualify for probate.  

This can become even more complicated if you own real estate outside of Illinois, as the state where the property is located will need the property dealt with in line with their particular probate process. For a more in-depth discussion on what probate looks like in Illinois, please check our article on What is Probate? The important things to keep in mind with probate is that it is:

• Inefficient, with a portion of your estate being spent in the court's administration of the process and your heirs incurring associated probate attorney fees.

• Time consuming, with the court potentially taking up to a year to administrate your estate.
• Often contentious, as your decedents are left without a clear understanding of your intentions for the disposition of your estate, with the potential for unfortunate and ugly disputes during an already stressful time.
• Avoidable, by doing your homework and working with a qualified Illinois estate planning attorney to create an estate plan that works for you and your goals.

What is estate planning?

Estate planning can be understood as the process by which your estate is prepared to be executed in line with your wishes in the most efficient way possible, preferably avoiding probate and paying as little estate tax as possible.  

However, as each estate will vary based on its size and the type of property therein, so too will each estate plan. The first thing that comes to mind when you think of estate planning is probably a will, however there is significant reasons why this may not be the best place to start. Wills will need to be administered by a court through the probate process, and while having the will is preferable to the alternative this process will still take time and money.  

One option we often recommend is a Revocable Living Trust, this allows you to avoid probate while maintaining control of your estate throughout your life, and at the same time control the disposition of your assets after your passing.  For more information on Illinois Estate planning and working with an Illinois estate planning lawyer, please check our article on What is Estate Planning?

What is an estate tax?

An estate tax, sometimes referred to as a “death tax,” is a tax levied on an estate at the decedent’s passing. There is a federal estate tax that applies nationwide, and certain states have introduced estate taxes at the state level as well. Generally, there will be an estate tax exemption, where estates under a certain set amount will not be subject to a tax.  As of 2021, at the federal level the exemption is set at 11.7 million dollars.  

Any value beyond that number is taxed at a rate of 40 percent.  In Illinois, the exemption level is 4 million dollars.  Illinois estates that exceed this amount are subject to a graduated estate tax coinciding with the value of the estate, with the highest rate being 16 percent. Learn more about estate tax planning in our article Illinois Estate Tax Planning Explained.

What are the recent changes to estate tax?

In recent years, and especially during the 2021 election, estate taxes have become a controversial issue.  As such, there is the potential for a lot of change in the coming years, with significant hikes looming on the horizon.  President Joe Biden repeatedly expressed his desire on the campaign trail to see the estate tax exemption significantly lowered, and with both the presidency and the legislature onboard, we will probably see change sooner rather than later.  

The likely first change will come with the end of the Tax Cuts and Jobs Act currently set to expire in 2025. This act saw the federal estate tax exemption expanded to 11.7 million dollars.  With its expiration, we will see that number come back to the previous amount of 5 million dollars.  The date of the Tax Cuts and Jobs Act expiration may be moved up to as early as next year.  

President Biden has called for lowering the estate tax exemption below even its pre-Tax Cuts and Jobs Act level, proposing 3.5 million as a potential cut off.  With Illinois facing a budget crisis, it's possible state lawmakers may look to the estate tax as a solution for meeting shortfalls.  If the federal estate tax exemption should be set below 4 million, Illinois may follow suit, reducing the state’s exemption to the new federal level.  

What can I do to minimize my estate tax payment?

A potential option is a spousal lifetime access trust, or a SLAT.  A SLAT is an irrevocable trust with the express purpose of providing for your spouse and children.  With a SLAT you would qualify for the current estate tax exemption on the assets removed to the trust.  With a SLAT, the creator can indirectly access their assets in the trust.  However, it is important to keep in mind that a SLAT should not be abused; if the spouse freely uses the trust to pay for items that would otherwise be bought for the couple’s joint use you run the risk of the trust being nullified.  Once nullified, all assets held in the trust qualify for whatever the estate tax exemption is at the point of nullification.  For a look at the broader changes to estate planning and a more in depth look at the spousal lifetime access trust, please check our article on Illinois Estate Planning in 2021 and Beyond.

Request a consultation with an Illinois Estate Tax Lawyer.

When trying to answer your estate tax question, make sure you are informed and working with a qualified Illinois estate planning attorney.  Call our office at (630) 324-6666 or schedule a consultation with one of our experienced estate planning lawyers today. You can also fill out our confidential contact form and we will get back to you shortly.

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