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March 1, 2012
By: Lee T. Poteracki

Lost in the recent publicity regarding the Illinois income tax relief law enacted to entice Sears and CME to remain in Illinois was a significant change to the Illinois Estate Tax that was tacked on to the law. The statute was signed into law by Governor Quinn on December 16, 2011.

The Illinois Estate Tax law prior to this new law recognized an “exclusion amount” of $2 million. Thus, for Illinois citizens dying before January 1, 2012, the Illinois Estate Tax was levied on the taxable estate of the decedent in excess of $2 million, at a graduated tax rate of eight (8%) to sixteen (16%) percent.

The recently-signed law increases the exclusion amount to $3.5 million for persons dying in 2012 and $4.0 million for persons dying on or after January 1, 2013.

While this relief is welcome, it does not synch up with the federal estate tax, which now taxes decedents’ taxable estates which exceed $5 million for persons dying in 2011 and 2012, but is scheduled to revert to only a $1 million exempt amount beginning in 2013. While the conventional wisdom among tax practitioners assumes that the current $5 million exempt amount (or a similar amount) will be extended by future federal legislation, the experience of the recent past has taught us to be careful about such assumptions.

The change in Illinois’ Estate tax law should not require any change to estate plans drafted with the prior $2 million exemption in mind. Our tax practitioners are watching this developing scenario closely to evaluate what modification, if any, will be required to our clients’ estate plans if and when Congress acts.