I received a number of emails from readers who responded to our last column on the Federal Gift Tax. They noted that the Gift Tax was imposed on the donor versus the recipient of the gift, and they raised the question of what taxes, if any, must be paid by the recipients. Currently, there are no taxes paid by recipients of gifts at the Federal or Illinois state levels for Illinois residents. Residents of other states should check with the applicable stateās revenue department to determine if the state imposes taxes on recipients of gifts.
As we addressed in the last column, the Federal Gift Tax applies to exchanges of assets during the donorās lifetime. Estate taxes are imposed on a deceasedās estate. For decedents in 2011, their estate is exempt from Federal or Illinois state tax for transfers of assets to spouses. For transfers to others, there is a $5,000,000 Federal exemption and a $2,000,000 Illinois state exemption. For estates with net assets exceeding $2,000,000, the executor must file an Illinois Estate Tax Return, Form 700. Similarly, for estates with net assets exceeding $5,000,000, executors must file a Federal Estate Tax Return, Form 706.
An Inheritance Tax is a tax imposed on recipients of property from a deceasedās estate. The tax is calculated separately for each recipient/beneficiary. Each recipient is responsible for filing and paying their tax. Currently, heirs/recipients of property from an estate in Illinois are not subject to any Federal or Illinois state tax (unless the executor of the estate failed to pay the appropriate estate tax). There are other states that do impose Inheritance Taxes. If you inherit property from a decedent in another state, check with the law in that state to determine if you owe inheritance tax on property being transferred to you from that state.
Before we leave the topic of estates, have you updated your Last Will and Testament? If you moved here from out of state, you may want to check with your lawyer to make sure your Will meets the requirements of Illinois.
Keep those letters coming, folks. Send your ideas to: The Frugal Forum, P.O. Box 693, Huntley, IL 60142 or by email to: thefrugalforum@gmail.com
