The federal government imposes gift taxes on transfers during life, estate taxes on transfers at death (including on the value of life insurance proceeds), and generation-skipping transfer taxes on transfers that cross generations. In addition, Illinois and many other states impose a separate estate tax on transfers at death. The federal estate tax rate is a fixed 40%, and the top Illinois estate tax rate is effectively 28.57%. However, there are a number of deductions and exclusions that can be used before paying any transfer tax. For example, in 2021, each person has a $4,000,000 exemption against Illinois estate tax, and an $11,700,000 exemption against federal estate tax.
If a married couple has assets (including the death benefit on life insurance) that exceed the state or federal estate tax exemption amounts in any year, there are a number of techniques they could use to minimize estate tax exposure, including credit-shelter trusts and irrevocable life insurance trusts.
These techniques are beyond the scope of this pro bono program.