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IL estate lawyerThe topic of estate planning is important, but it can seem daunting to think about. When a person dies, an estate tax is imposed on the value of the estate left behind, before any beneficiaries (family members or close friends) inherit anything.

An inheritance tax is imposed on an individual who receives any type of inheritance. Although some states do have inheritance taxes, there is no federal or state tax imposed on inheritances in Illinois. It is important to distinguish between these two kinds of taxes in order to protect the rights of those on the receiving end.

Understanding the Illinois Estate Tax

There is both a federal estate tax and an Illinois estate tax, however, the size of the estate must be significant for either one of these types of estate tax to apply. The Illinois estate tax rate is graduated and can go up to 16 percent, but it is only applied on estates worth more than $4 million. This means that if a decedent’s total estate is worth less than $4 million, the estate does not have to pay anything to the state. If an estate is worth more than $4 million, there is a progressive estate tax rate, and the estate will have to pay before money can be distributed to any heirs.

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DuPage County estate planning lawyer, well-formulated estate plan, estate tax, federal estate tax, death tax, business estate planA well-formulated estate plan gives estate owners peace of mind knowing their assets and funds are going to the right place. One reason why it is important to develop an estate plan is to potentially reduce or eliminate federal estate taxes, also known as the "death tax." Calculated at 40 percent, these taxes not only diminish funds from loved ones but they can also severely impact a private company.

According to an article in Forbes, an estate is only subject to federal estate tax if it is valued at more than $5.34 million. Moreover, there is a marital exemption. If you are married, you and your partner will not have to pay federal estate taxes unless your combined estate is valued at more than $10.6 million. Although these limits mean most Americans will not need to pay estate tax, those who do could see a substantial loss in wealth. If a business is owned, there are a number of other criteria, including death or retirement of the key asset holder, that can affect a business's equity before estate tax comes into effect. Understanding these factors can put a person in a position to keep these taxes low.

In addition, Forbes contributor Steve Parrish notes that business owners may also face the challenge of not having "sufficient liquidity to carry the estate through to distribution to the beneficiaries." Creditors may need paid off or lost revenue may need supplemented. However, this can be avoided by having an estate plan that is sufficient in funds. A well-formulated estate plan considers all factors "that can challenge the successful transfer of wealth, including the estate tax," states Parrish.

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