Benjamin Franklin famously remarked that “nothing can be said to be certain, except death and taxes.” In fact, sometimes death and taxes go together. The federal government and state governments impose estate taxes on the assets people own when they die. That is the bad news. The good news is that most people will not be subject to estate taxes. This is one area in which recent changes in the law have been positive for most people.
Federal estate taxes are not as much of a concern as they were years ago. That is not to say that the Federal estate tax rate is that much lower or impactful; rather, federal estate taxes do not affect quite as many people. Not long ago, the Federal unified exclusion amount was as low as $650,000. Today, it stands at $5,250,000, and it will rise to $5,340,000 in 2014.
The unified exclusion amount is the amount that an individual can give away during life or transfer upon death without owing Federal estate tax. With the unified exclusion amount of over $5 Million Dollars, fewer people are impacted today by Federal estate taxes than they were in the not too distant past. The maximum Federal estate tax for is 40%.
With that said, however, State inheritance taxes kick in at a lower level. Not many years ago, the State inheritance tax matched the Federal estate tax. The State inheritance tax has now been decoupled and currently applies for estates that exceed $4 Million Dollars and will remain at that level for the foreseeable future. Although lower than the Federal estate tax exclusion, the Illinois estate tax exemption is still high enough that most people do not need to be concerned about it. The maximum State estate tax is 16%.
Many people wrongly believe that the requirement to file a Federal or State estate tax return is based on the net value of the Estate. Unfortunately, the requirement to file an estate tax return is based upon the gross value of an estate. The gross value of a taxable estate includes things like the payable on death amount for life insurance, any property over which a person has a power of appointment (a right to direct the disposition of property), and other things that are not often considered when determining the value of ones assets. With life insurance, IRA’s, pensions, and other property interests, some people may be surprised to find that their estates are taxable.
Anyone with an estate that is approaching the State exclusion amount should consider doing estate tax planning. The basics of estate tax planning will be the subject of a future article. If you would like to know more in regard to your own estate, please contact us at the phone number or email address below.
You may also find other estate planning articles and resources at the
Drendel & Jansons Estate Planning Blog https://batavialaw.com//blog/category/estate-planning-2/ and
Drendel & Jansons Estate Planning Resources Page https://batavialaw.com//resources/#estate_planning
This article is not intended to create or imply an attorney-client relationship and is not intended as specific, legal advice. This article contains only general statements and opinions of the law and should not be relied upon for advice or application to a particular circumstance or set of facts. No attorney/client relationship is formed by the publishing of this article or responses to it. No information contained herein is a substitute for a personal consultation with an attorney. Visit www.batavialaw.com or call (630) 406-5440 for more information.