The Federal estate tax used to allow a credit for state death taxes. The Illinois estate tax was the amount of the credit allowed under Federal law. Under this scheme the total Illinois and Federal tax was the same as the total Federal tax before the credit.
The Federal law has been changed and the credit for the state death taxes is being phased out beginning in 2002. Because of this, as of January 1, 2003 Illinois has a new estate tax law. This provides that the Illinois estate tax is the amount that would have been allowed as a credit for state death taxes under the Federal tax before 2002. The net effect is a substantial increase in the total of Illinois and Federal estate taxes.
The pre-2002 Federal credit was based on the adjusted taxable estate which is the taxable estate less $60,000. The Federal state death tax credit schedule was (and thus the Illinois estate tax schedule is):
| Adjusted Taxable Estate |
Credit |
| Over |
But Not Over |
Credit Is Lower Amount |
Plus the % of the Excess |
| $40,000 |
$ 90,000 |
$0 |
0.8 |
| 90,000 |
140,000 |
400 |
1.6 |
| 140,000 |
240,000 |
1,200 |
2.4 |
| 240,000 |
440,000 |
3,600 |
3.2 |
| 440,000 |
640,000 |
10,000 |
4.0 |
| 640,000 |
840,000 |
18,000 |
4.8 |
| 840,000 |
1,040,000 |
27,600 |
4.8 |
| 1,040,000 |
1,540,000 |
38,800 |
6.4 |
| 1,540,000 |
2,040,000 |
70,800 |
7.2 |
| 2,040,000 |
2,540,000 |
106,800 |
8.0 |
| 2,540,000 |
3,040,000 |
146,800 |
8.8 |
| 3,040,000 |
3,540,000 |
190,800 |
9.6 |
| 3,540,000 |
4,040,000 |
238,800 |
10.4 |
| 4,040,000 |
5,040,000 |
290,800 |
11.2 |
| 5,040,000 |
6,040,000 |
402,800 |
12.0 |
| 6,040,000 |
7,040,000 |
522,800 |
12.8 |
| 7,040,000 |
8,040,000 |
650,800 |
13.6 |
| 8,040,000 |
9,040,000 |
786,800 |
14.4 |
| 9,040,000 |
10,040,000 |
930,800 |
15.2 |
| 10,040,000 |
—– |
1,082,800 |
16.0 |
The Illinois tax is based on the Federal adjusted taxable estate and Illinois adopts the same exclusion amounts as Federal law. These exclusion amounts are scheduled to rise as follows:
| 2003 |
$1,000,000 |
| 2004-2005 |
$1,500,000 |
| 2006 and after |
$2,000,000 |
The Illinois Estate Tax is thus based on amounts over the Federal exclusion amounts.
The Federal exclusion amount rises to $3,500,000 in 2009, but Illinois limits the amount to $2,000,000.
The Illinois Estate Tax is computed with respect to the Federal Taxable estate. However, the Illinois Estate Tax is a deduction in computing the Federal Taxable Estate. Thus you have interrelated computations. The Illinois Attorney General’s office has software to make the calculation which you can find on their site at www.illinoisattorneygeneral.gov.
Many estate plans avoid federal estate tax by saying the marital deduction gift is the least amount that will result in no federal tax. Thus the marital gift is everything over the exclusion amount. In 2009 the federal and Illinois exclusion amounts will be different so this type of estate plan will result in no federal tax, but some Illinois tax. This could be avoided by increasing the amount of the marital deduction gift to the least amount that will result in no federal or Illinois tax.
In 2010 the Federal tax expires and so does the Illinois tax. If Congress passes no further legislation the Federal estate tax then comes back into effect in 2011 as it was in 2001 with the same tax rates and $1,000,000 exclusion amount applicable to that year. If that happens, the Illinois law provides that it reverts to what it was then when it was the amount of the federal credit for state death taxes.
Unlike the Federal tax, the Illinois tax does not apply to lifetime gifts.
Contact Chicago Probate Lawyer Don Thompson for further information.
