Estate taxes – and the related gift taxes – are simply limits on how much one can inherit and how much one can give another before taxes are imposed. In essence, these taxes try to limit the transfer of wealth, favoring the distribution of wealth through taxes that benefit the entire country. At least, that’s the underlying idea.
Estate tax
An estate tax is a tax on your right to transfer your wealth upon your death. Your estate is considered the fair market value — not what you paid — of everything you own in full or partially at the time you die. This includes cash, property, jewels, stocks and trusts.
There’s a lot of controversy and fear that the government will take a huge portion of even a modest inheritance. However, only the richest Americans owe estate taxes, because they are levied only on very large estates. And even for the very wealthy, there may be trusts and other techniques to limit the exposure.
Some states also have an estate tax, and their floors may be lower, but again, typically only the very well-off will face a price tag.
Illinois Estate Tax Exemption
TheIllinois estate tax rate is graduated and goes up to 16%. It is applied on estates worth more than $4 million. Accordingly, if you die or pass away and your estate is worth less than $4million, then your estate does not owe anything to Illinois.
In Illinois, unlike some states, the exemption is not portable between spouses.
Gift tax
The IRS is entitled to tax any gift you give anyone during your lifetime, so long as it exceeds a certain amount. Typically, the donor, not the recipient, pays the gift tax, although you can make arrangements for the recipient to take care of the tax.
Each year, you are allowed to give a gift tax-free to anyone so long as it does not exceed the annual “exclusion,” an amount that the government sets and frequently changes.
Gifts that are tax-free
Of course, any gift less than the annual exclusion is not taxed. The following gifts are not taxed either:
- Tuition or medical expenses;
- Gifts to your spouse; or
- to a political organization for its use; and/or
- to qualifying charities.
Have you spoken with an attorney?
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