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New Law Allows the Deferral of Illinois Estate Tax Upon the Death of a Spouse


October 1, 2009

Read Time

2 minutes


As we highlighted in a DataPoint in February, for the first time in recent memory, the federal and Illinois estate tax exemptions are not pegged at the same amount. On January 1, 2009, the applicable exclusion amount for federal estate tax purposes increased to $3,500,000. This significantly increased the amount a person can pass at death without imposition of federal estate tax. Illinois residents are also subject to an Illinois estate tax, but under current law the exemption for Illinois estate tax purposes is capped at $2,000,000.

An estate plan prepared for a married couple with assets in excess of the estate tax exemption typically provides for the creation of trusts designed to take advantage of the federal and state estate tax exemptions while deferring the payment of any required estate tax until the death of the surviving spouse (through the use of the federal unlimited estate tax marital deduction). Due to the current difference between the federal and Illinois estate tax exemptions, it is possible that, under older estate planning documents, taking advantage of the federal estate tax exemption could result in as much as $200,000 of Illinois estate tax being due on the first spouse's death. The only way to be assured of paying no federal or Illinois estate tax on the first spouse's death would be to not take full advantage of that spouse's federal estate tax exemption.

Governor Quinn recently signed legislation which in effect creates an Illinois estate tax marital deduction, separate and apart from the federal estate tax marital deduction. The legislation allows for the creation of a separate trust on the death of the first spouse to die which takes advantage of this Illinois marital deduction but not the federal marital deduction. An Illinois resident is therefore once again able to take full advantage of both the federal and Illinois estate tax exemptions, while again deferring the payment of any estate tax until the surviving spouse's death.

As a result of this new legislation, it becomes easier to defer the Illinois estate tax that would otherwise be imposed on the first spouse's death, if the estate planning documents are drafted properly. It may not be necessary to modify your current estate plan, but if you have not updated your estate planning documents since 2005, you should consult with a lawyer to ensure that the documents are drafted to avoid any inadvertent imposition of Illinois estate tax. We would be pleased to speak with you and review your required documents.

If you would like to discuss these matters in more detail, please contact either Robert A. Romanoff (312-476-7525), Stuart J. Kohn (312-476-7506) or Sheri E. Warsh (312-476-7513).

Filed under: Trusts & Estates

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