Case Study: Multi-State Planning Opportunity

Estate planning may involve many challenges. Not infrequently these challenges are a desire to maintain assets such as a business or farmland for multiple generations, the payment of federal and state estate taxes, and clients who have homes in more than one state. While gifting and other estate planning may be helpful, these do not alone address these challenges.

We looked at having homes in more than one state not as a challenge but a planning opportunity. While Illinois has an estate tax, the majority of states do not. Among states without an estate tax are Arizona, Colorado, Florida, and Missouri, states in which many of our clients have second homes. Those who do not may well be willing to acquire a home in a state without an estate tax to avoid or reduce Illinois estate taxes. We assisted our client in establishing legal residency in a state without an estate tax. We also guided changing the estate tax situs of Illinois property to the state of residence through the use of limited liability companies or corporations. Estate planning documents were updated to allow continuation of business or farmland interests through trusts, also written to take full advantage of the applicable federal estate tax exemption. Other estate planning arrangements also were explored such as transferring life insurance to irrevocable trusts, charitable planning with retirement accounts, and a focused gifting plan of assets likely to appreciate in value.

Upon implementing the plan, our client was poised to avoid all Illinois estate taxes although holding substantial Illinois farmland through a limited liability company. The effective rate of the Illinois tax for amounts over $4 Million can range between roughly 17% where there are federal estate taxes and 28% if there are no federal estate taxes. The federal estate tax exemption (for 2018) is $11.2 Million for an individual and $22.4 Million for a couple. Because federal estate taxes remained a concern, these were reduced by undertaking the other estate planning techniques suggested. A great advantage to the client was that the Schmiedeskamp firm had estate planning lawyers licensed in those states where clients commonly relocate.