Your inheritance may be the largest sum of money you receive at one time. Unsurprisingly, you may wonder whether and how much tax you will pay on it.

While there is no inheritance tax in Illinois, the amount you receive may be less than expected if the estate is subject to Illinois’ estate tax. This tax is paid from the estate’s funds before anyone receives distributions.

Several techniques can minimize the amount your estate will owe, though tax sometimes cannot be avoided. If you want to establish an efficient estate plan or need help figuring out the estate tax after losing a loved one, Vantage Group Legal Services can help. For a service fee, we connect you with an attorney within our network with the experience and skills to guide you.

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Does Illinois Have an Inheritance Tax?

There is no inheritance tax in Illinois, but Illinois has an estate tax. As a result, there is an indirect tax on inheritance in Illinois.

What Is the Difference Between an Inheritance Tax and an Estate Tax?

You may be wondering why it matters that Illinois’ inheritance-related tax is an estate tax, not an inheritance tax. These taxes work differently and can result in different outcomes.

An inheritance tax is levied on the inheritance, while an estate tax applies to the estate. This distinction is more than just semantics. The heir pays inheritance tax out of their share of the estate. The estate’s representative pays estate taxes out of the estate’s funds. 

Consider two estates, both worth $12,000,000. Both estates have three heirs who are entitled to equal shares. The first estate is in State A, which imposes a flat estate tax of 5% on estates worth over $4,000,000. The second is in State B, which imposes a flat inheritance tax of 5% on inheritances over $2,000,000.

In State A, the estate pays estate taxes only on the taxable estate, meaning the amount of the estate is over $4,000,000. So, the taxable estate is $8,000,000. At a tax rate of 5%, the estate would owe $400,000, and each heir would receive one-third of $11,600,000, approximately $3,870,000. 

In State B, the three heirs would each receive $4,000,000. Each would owe 5% of their $4,000,000 share, or $200,000. In total, each heir would keep $3,800,000.

What Is Illinois’ Estate Tax Rate?

Illinois’ estate tax only applies to estates worth $4,000,000 or more. Unlike our example above, which used a flat tax rate, Illinois uses a progressive estate tax rate. The percent an estate owes increases as the size of the taxable estate grows until the estate reaches the maximum tax rate.

The taxable estate is the value of the estate that exceeds $4,000,000. For example, a $5,000,000 estate has a taxable estate of $1,000,000. 

Illinois imposes an estate tax of 0.8% at the lowest level and 16% at the highest. Several factors, like tax credits and gifts, affect the exact rate an estate will owe. The Illinois Attorney General’s online calculator can help you estimate how much an estate may owe.

How Do You Pay Illinois’ Estate Tax?

When an individual dies, the court appoints a personal representative to manage their estate. The personal representative, either an executor or an administrator, is responsible for paying the estate tax out of estate funds.

The personal representative should submit Form 700 to the Illinois Attorney General to pay the estate tax owed. This form is due within nine months of the individual’s death.

Get Help With Your Estate

An Illinois probate lawyer can help you determine whether and how much estate tax you owe. An experienced, knowledgeable attorney can also help if you are trying to plan your estate and hoping to save as much for your loved ones as possible. Vantage Group Legal Services can help you find the legal representation you need.

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