Unlike many states in the US, Illinois inheritance tax is applicable even if you have paid the federal estate tax. You will pay the federal estate tax if you inherit an estate worth more than $5.45 million. The inherited estate involves all assets including any property, retirement account, savings, bonds, etc. Any property you inherit will go through the probate process. On the other side, you must pay Illinois inheritance tax upon receiving an asset worth $4 million. That means, you may not have to pay the federal estate tax, but you will pay the state inheritance tax if you inherit assets worth more than $4 million.
An estate tax is what you will pay to the government. The probate court deducts this tax once the probate is over. Inheritance tax is different, and beneficiaries will pay this tax after receiving their share. The estate tax laws keep changing so; please consult a tax attorney to know about the latest regulations in this sector.
Each inherited estate (other than the ones found in a living trust) must go through the probate process. While the advertised benefit of a probate is to make sure that beneficiaries receive their share of the inheritance, it is actually not the case. The probate process is mandatory to ensure that the governing agencies receive their share of tax and payable funds. Only after the taxes are paid on the estate, you will be able to distribute it to the beneficiaries.
The tax calculations vary, but in most cases, the tax is calculated on:
“The total monetary value of the estate+ All the federal gifts given in the lifetime of the deceased person.”
In a formal probate process, it is the executor’s job to file the inheritance tax return. The executor will only submit one report regardless of how many beneficiaries are inheriting the estate. The maximum inheritance tax rate in Illinois is 16%, and it varies depending on how close you are to the deceased person. Distant relatives have to pay more while children and siblings pay significantly less. Keep in mind, the executor files only one tax return, but each person who inherits must pay his/her own taxes.