If you have a sizable estate in Illinois, reducing estate taxes can keep more of your wealth in your family’s hands. Illinois imposes its own estate tax, separate from the federal tax, so smart planning makes a big difference.
Understand the Illinois estate tax threshold
Illinois currently taxes estates valued above $4 million. If your estate exceeds this amount, the Illinois estate tax could take a significant portion. Knowing where your estate stands helps you decide which strategies to use.
Use gifting to lower your taxable estate
Giving gifts during your lifetime reduces the size of your estate. Illinois doesn’t tax gifts, so transferring assets to loved ones early can avoid estate taxes later. Annual gift tax exclusions let you give up to $17,000 per recipient in 2024 without tax consequences. Spreading gifts over the years makes a big impact.
Consider trusts for asset protection
Trusts are powerful tools in estate planning. An irrevocable trust can remove assets from your estate, lowering estate tax exposure. For example, a dynasty trust can keep wealth in the family for generations while minimizing taxes. You still benefit from the assets but avoid adding them to your taxable estate.
Leverage life insurance planning
Life insurance proceeds generally don’t count as part of your taxable estate if owned correctly. Using an Irrevocable Life Insurance Trust (ILIT) keeps the policy outside your estate, providing tax-free funds for heirs to cover estate taxes or other expenses.
Regularly review and update your estate plan
Estate tax laws can change. Reviewing your estate plan regularly ensures it adapts to new thresholds and rules, helping you avoid unnecessary taxes. Working with a trusted professional can make this easier and keep your plan effective.
