Paying Less Estate Tax Through Smart Estate Planning

 Posted on February 26, 2025 in Estate Planning

Sometimes, it can seem like we are being taxed every time we turn around. Income tax, sales tax, property tax, estate tax, inheritance tax – there is a tax for virtually everything you do on a regular basis, as well as anything you might even think about doing, including dying. Estate taxes on larger estates can take a significant chunk of the estate, which can be disheartening for those who hope to leave something substantial for children and grandchildren.

In many cases, smart estate planning can make a difference in how much you can leave to your heirs. The Illinois estate tax rate is graduated, going up as high as 16 percent, but it only applies to estates worth more than $4 million. This means that if your estate is worth less than $4 million at the time of your death, your heirs will not owe anything to the state.

If your estate is worth more than $4 million, there is a progressive estate tax that must be paid to the state of Illinois before the remainder can be distributed to your heirs. Estate taxes are often called "death taxes" because they go into effect after the death of the person who is leaving assets to his or her heirs. There are ways to minimize estate taxes for your heirs. The best thing you can do is to speak to a knowledgeable Cook County, IL estate planning lawyer.  

Estate Tax, Inheritance Tax, Gift Tax – Which Is It?

Estate taxes are levied against wealthier people after they die but before the money is distributed to heirs. Some states also have an inheritance tax, where the heirs who inherit money and assets must pay taxes on those assets to the state. Illinois currently has no inheritance tax, but if a person living in Illinois inherits property in Kentucky, then inheritance taxes must be paid to the state of Kentucky.

Gift taxes are federal and apply to gifts worth more than $19,000 in 2025. Any gifts that are more than $19,000 and given to one person count against the 2025 lifetime gift tax exemption of $13.00 million. The Illinois estate tax does not apply when one spouse dies and transfers all the marital assets to the surviving spouse. Many couples use trusts to decrease the estate tax for their heirs.

Minimizing Illinois Estate Taxes

Overall, Illinois is a friendly state for retirees. The majority of retirement incomes – including pension plans, retirement plans, and Social Security – are tax-free. The Illinois income tax is a flat 4.95 percent, regardless of income.  Illinois also has the second-highest property tax rates in the nation. You can do several things to minimize Illinois estate taxes, including:

•  Consider setting up an irrevocable living trust that allows you to transfer ownership of assets to the trust. Since the trust owns the assets, they are not included in the overall value of your estate, leaving your heirs no liability for these assets.
• While giving money to loved ones is usually a positive thing, make sure you do not exceed the recipient's annual exemption, triggering a gift tax liability. You and your spouse can alternate making gifts throughout the year, doubling the exemption to $32,000.
• Donate to the charities of your choice; you will receive a 100 percent tax deduction for the amount of each deduction, downsizing your estate in advance. You may also choose to create a charitable trust or donate specific assets like retirement accounts or life insurance policies, which have different tax strategies.
• Pay tuition for children or grandchildren, which are specified as educational payments rather than "gifts." These payments must go directly to an educational institution.
• Consider placing your home into a Qualified Personal Residence Trust, which will last for a fixed period. Gains on the value of the home are tax-exempt.

Contact a DuPage County, IL Estate Planning Lawyer

If you have been considering having an estate plan prepared, speaking to a Cook County, IL estate planning attorney from Whitacre & Stefanczuk LTD can be the best step to take to start the process. We have a very intimate, communicative practice with an attorney who speaks fluent Polish and is active in the Polish community. Call 773-622-6100 to schedule your free consultation.