According to the IRS, an estate tax is a tax on one’s ability to transfer property after their death. This can be a highly controversial topic. Critics denounce it as the “death tax.” Proponents of the tax say it furthers the cause of equal opportunity, serves as an incentive for charitable giving and raises revenue for necessary government programs.
They also say the tax affects a very small percentage of all estates. In part, this is because the estate tax only applies to estates that have a value over a certain threshold. For the federal estate tax, the threshold has gone up and down over the years, and in 2024, stands at $13.61 million for individuals. In other words, if a person dies in 2024, and their estate is worth less than $13.61 million, the estate doesn’t have to pay the federal estate tax at all.
If an estate is worth more than $13.61, the estate tax kicks in with graduated rates that go higher with each bracket. The lowest bracket is 18% and the highest is 40%. This means that the first $10,000 over $13.61 million is taxed at a rate of 18%. Each bracket higher than that amount is taxed at a higher rate, and the highest bracket is taxed at 40%.
The Illinois estate tax
As you can imagine, few American families have to worry about the federal estate tax because the high threshold means that it can apply only to the wealthiest individuals.
However, many states, including Illinois, have estate taxes of their own, and these have much lower thresholds. The threshold for the Illinois estate tax stands at $4 million.
As with the federal tax, the Illinois estate tax applies in brackets. The highest rate is 16%.
With smart estate planning strategies, families can minimize their estate taxes and maximize their legacies.