In 2011, Illinois has retained a $2 million state death tax exemption, which differs from the $5 million Federal Estate Tax exemption. This is a significant issue for many older Estate Planning documents which only take the Federal exemption into consideration when determining the division of assets at the first death. The affected estates may find a large Illinois estate tax bill in their mailboxes if the trust language is not remedied during his or her life.
By building flexibility into the document itself, the trustee can determine whether it is best to (a) defer all taxes until the second death, (b) pay some state tax at the first death (lower rate) in order to fully utilize the Federal exemption or (c) utilize the Illinois Qualified Terminable Interest Property (QTIP) to defer the state tax due until the second death while also fully utilizing the Federal exemption.
If you are uncertain whether this issue was addressed by your Estate Planning Attorney, please contact me for a review of your existing documents. There is no charge for a document review.