ESTATE TAX

The estate tax is a tax on the value of the decedent’s assets as of his or her date of death. For estate tax purposes, the “decedent’s assets” (gross estate) would include interests in real estate, stocks and bonds, bank accounts, annuities, retirement accounts, living trust assets, and some life insurance. If a decedent’s gross estate exceeds the unused portion of his or her Federal applicable exclusion amount ($12.92 million for 2023 decedents, 40% maximum rate on assets greater than $12.92 million), a Federal estate tax return is required to be filed even if no Federal estate tax may be due (because of certain deductions for debts, expenses, gifts to a surviving spouse, and gifts to charities). If a decedent’s gross estate exceeds the Illinois exemption amount ($4 million for 2023 decedents), an Illinois estate tax return is required to be filed even if a Federal estate tax return may not be required. The estate tax return(s), if required to be filed or if opted to be file, are due 9 months after the decedent’s date of death.

Under current law, portability of a decedent’s “Deceased Spouse’s Unused Exclusion” (DSUE) allows a surviving spouse to use his or her deceased spouse’s unused applicable exclusion amount, effectively increasing the amount that the surviving spouse can then gift or leave to his or her family at death estate tax free. A decedent’s DSUE must be claimed using a timely-filed Federal estate tax return followed the first spouse’s death. Therefore, even though a Federal estate tax return may not be required because the decedent’s gross estate does not exceed the applicable exclusion amount, it may still be advisable to file a Federal estate tax return electing portability of the deceased spouse’s DSUE.

GIFT TAX

The gift tax is a tax on the lifetime transfer of property, either directly or indirectly, by one individual (donor) to another (donee) while receiving nothing or less than adequate consideration in return. The gift tax may apply whether the donor intended the transfer to be a gift or not (e.g., making an interest-free loan). The donor is the party responsible for the payment of any gift tax liability.

Each individual may give up to the applicable exclusion amount (currently $12.92 million) during lifetime without paying gift tax. In addition to the lifetime exemption, a donor may give up to the annual exclusion amount ($17,000 for 2023, indexed for inflation) to anyone annually without using up any portion of his or her applicable exclusion amount. Also, certain gifts qualifying for the medical or educational gift tax exclusion, certain gifts to spouses, and certain gifts to charities may be exempt from gift tax.

If a donor makes a taxable gift that uses a portion of his or her applicable exclusion amount, he or she will need to file a Federal gift tax return to record the use of that portion. The gift tax return and any gift tax liability due would be due on April 15 in the year following the year that the transfer occurred.