Tag: Estate

Estate Tax Developments under the New Tax Act – What about Illinois residents?

Under the Tax Cuts and Jobs Act, the new federal estate tax system “exempts” from federal estate tax, all estates under $11.2 million for each decedent, meaning that a married couple could have an estate of $22.4 million and not incur any federal estate taxes. This higher amount means that most estates will not be subject to federal estate tax. These amounts will be subject to increase, based upon increases in the Consumer Price Index; however, the amount “sunsets” after 2026, and the amounts will be reduced by half.  The good news is that many estate plans can be drafted with little regard to federal estate taxes in some states. The bad news is that residents of Illinois are subject to a much lower threshold and may need to examine their estate plans in light of the Illinois thresholds.

Illinois taxes all estates in excess of $4 million AND, if not structured properly, both spouses may not be able to take advantage of the full amount. While federal law generally permits a surviving spouse to “use” any unused exemption amount of their deceased spouse, Illinois does not permit this. For federal tax purposes, if one spouse dies with a $6 million dollar taxable estate, then under some circumstances, the surviving spouse may use his or her own exemption of $11.2 million, plus the “unused” $5.2 million of the deceased spouse.

“Typical” estate planning has often maximized the federal exemption amount on the first spouse to die by putting that into a segregated trust while leaving everything else to the surviving spouse. If you have not looked at your estate planning documents, you should do so immediately. Under the “typical” plan, the surviving spouse is often only entitled to receive income from that segregated trust which holds the maximum federal exemption amount; principal distributions are based upon need. Thus, the surviving spouse may not be able to access principal of the decedent’s estate without establishing a need. And to make matters worse, if that trust holds more than $4 million dollars, then there will be liability for Illinois estate taxes upon the death of the first spouse.

If you have any questions about your estate plan or how federal and Illinois estate taxes affect your estate planning, please call or contact:

Morris Saunders at:

312-368-0100 or msaunders@lgattorneys.com.

 

IRS Announces Attack on Family Business Transfers

On August 2, 2016, the U.S. Department of the Treasury announced a new regulatory proposal to “close a tax loophole that certain taxpayers have long used to understate the fair market value of their assets for estate and gift tax purposes.”

It is common for wealthy taxpayers and their advisors to use certain tax planning tools to take into account “discounts” for such things as lack of marketability and minority interests to effectively lower the taxable value of their transferred assets. These planning tools have been, until now, approved by the IRS and the courts. By taking advantage of these tactics, certain taxpayers or their estates owning closely held businesses or other entities can end up paying less in estate or gift taxes. Treasury’s action will significantly reduce the ability of these taxpayers and their estates to use such techniques solely for the purpose of lowering their estate and gift taxes. These proposed regulations are subject to a 90-day public comment period. The regulations themselves will not go into effect until the comments are carefully considered and then 30 days after the regulations are finalized.

If you were planning to make transfers of closely held business interests, you should consider whether it is appropriate to expedite making those transfers ahead of the effective date of the proposed regulations.

If you have any questions, please contact:

Morris R. Saunders at:

(312) 368-0100 or msaunders@lgattorneys.com.

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