Whether you make your money by working a job, investing your assets or renting out real estate to tenants, you pay taxes on that income as you earn it. Unfortunately, if you don’t start planning now to protect your heirs and the legacy you want to leave them, it is possible that your loved ones will have to worry about paying taxes on their inheritance.
Estate taxes can drastically reduce your legacy and change it from a source of good fortune and positive change to a source of stress and frustration. Careful planning for your estate should include a review to see if you will have to worry about estate taxes diminishing the value of what you leave behind for your loved ones or for charity.
How big does an estate have to be to faced taxation?
Not every estate is subject to estate tax at either the state or federal level. Illinois is one of a handful of states that assesses an estate tax at the state level. An estate with a value of over four million dollars will be subject to the progressive Illinois estate tax.
If the total value of your estate, including investments, business holdings and real property, will exceed four million dollars, planning for estate taxes can improve your legacy and increase the benefit your loved ones receive from what you leave behind.
Will you also have to pay federal estate taxes?
Illinois has a lower threshold for estate taxes than the federal government does. In other words, just because your estate would potentially have to pay Illinois estate taxes doesn’t mean it will be subject to federal estate taxes.
In 2020, the exemption for an estate before it incurs federal estate taxes is $11,580,000. Like the Illinois estate tax, the federal estate tax is progressive. The greater the amount of your estate, the higher the tax rate it will be subject to.
Wealth preservation often involves tax planning
You did not accrue all of that capital over the course of your lifetime just to turn around and pay it all to the government in taxes when you die. Careful planning now can reduce or potentially even eliminate the obligation for your loved ones to have to pay an estate tax on what should be their inheritance.