HB1731 104TH GENERAL ASSEMBLY

LRB104 10440 HLH 20515 b

104TH GENERAL ASSEMBLY
State of Illinois
2025 and 2026
HB1731

Introduced 1/28/2025, by Rep. Ryan Spain

SYNOPSIS AS INTRODUCED:

35 ILCS 405/2

from Ch. 120, par. 405A-2

Specifies that the amendatory Act may be referred to as the Estate Tax Inflation Law. Amends the Illinois Estate and Generation-Skipping Transfer Tax Act. Provides that, for persons dying on or after January 1, 2026, if a valid election has been made under the Internal Revenue Code allowing a person to take into account a federal deceased spousal unused exclusion amount for the purposes of calculating the person's federal estate tax, then the person's Illinois exclusion amount shall include the Illinois deceased spousal unused exclusion amount for the deceased spouse with respect to whom the federal election was made. Provides that the exclusion amount used to calculate the decedent's Illinois estate tax shall be increased each year by the percentage increase, if any, in the Consumer Price Index. Provides that, for the purpose of calculating the Illinois Estate Tax, the State Death Tax Credit shall be calculated only on the portion of the decedent's adjusted taxable estate that exceeds the decedent's Illinois exclusion amount. Effective immediately.

A BILL FOR

AN ACT concerning revenue.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 1. References to Act. This Act may be referred to as the Estate Tax Inflation Law.

Section 5. The Illinois Estate and Generation-Skipping Transfer Tax Act is amended by changing Section 2 as follows:

(35 ILCS 405/2) (from Ch. 120, par. 405A-2)

Sec. 2. Definitions.

"Consumer Price Index" means the index published by the Bureau of Labor Statistics of the United States Department of Labor that measures the average change in prices of goods and services purchased by all urban consumers, United States city average, all items, 1982-84 = 100.

"Federal estate tax" means the tax due to the United States with respect to a taxable transfer under Chapter 11 of the Internal Revenue Code.

"Federal generation-skipping transfer tax" means the tax due to the United States with respect to a taxable transfer under Chapter 13 of the Internal Revenue Code.

"Federal return" means the federal estate tax return with respect to the federal estate tax and means the federal generation-skipping transfer tax return with respect to the federal generation-skipping transfer tax.

"Federal transfer tax" means the federal estate tax or the federal generation-skipping transfer tax.

"Illinois deceased spousal exclusion amount" means the difference between (i) the applicable exclusion amount for the deceased spouse under this Act on the date of the deceased spouse's death and (ii) the amount with respect to which the tentative tax was determined under Section 2001 of the Internal Revenue Code on the estate of the deceased spouse. In no event may the Illinois deceased spousal exclusion amount be less than zero.

"Illinois estate tax" means the tax due to this State with respect to a taxable transfer.

"Illinois generation-skipping transfer tax" means the tax due to this State with respect to a taxable transfer that gives rise to a federal generation-skipping transfer tax.

"Illinois transfer tax" means the Illinois estate tax or the Illinois generation-skipping transfer tax.

"Indexed exclusion amount means:

(1) for persons dying on or after January 1, 2026 and dying before January 1, 2027, $5,300,000; and

(2) for persons dying on or after January 1, 2027, the exclusion amount calculated under this paragraph (2) for the calendar year in which the person dies; for each calendar year that begins on or after January 1, 2027, the indexed exclusion amount for the subject calendar year shall be the product generated by multiplying the indexed exclusion amount for immediately preceding calendar year by one plus the percentage increase, if any, in the Consumer Price Index for the 12-month period ending on September 30 of the immediately preceding calendar year.

"Internal Revenue Code" means, unless otherwise provided, the Internal Revenue Code of 1986, as amended from time to time.

"Non-resident trust" means a trust that is not a resident of this State for purposes of the Illinois Income Tax Act, as amended from time to time.

"Person" means and includes any individual, trust, estate, partnership, association, company or corporation.

"Qualified heir" means a qualified heir as defined in Section 2032A(e)(1) of the Internal Revenue Code.

"Resident trust" means a trust that is a resident of this State for purposes of the Illinois Income Tax Act, as amended from time to time.

"State" means any state, territory or possession of the United States and the District of Columbia.

"State tax credit" means:

(a) For persons dying on or after January 1, 2003 and through December 31, 2005, an amount equal to the full credit calculable under Section 2011 or Section 2604 of the Internal Revenue Code as the credit would have been computed and allowed under the Internal Revenue Code as in effect on December 31, 2001, without the reduction in the State Death Tax Credit as provided in Section 2011(b)(2) or the termination of the State Death Tax Credit as provided in Section 2011(f) as enacted by the Economic Growth and Tax Relief Reconciliation Act of 2001, but recognizing the increased applicable exclusion amount through December 31, 2005.

(b) For persons dying after December 31, 2005 and on or before December 31, 2009, and for persons dying after December 31, 2010, an amount equal to the full credit calculable under Section 2011 or 2604 of the Internal Revenue Code as the credit would have been computed and allowed under the Internal Revenue Code as in effect on December 31, 2001, without the reduction in the State Death Tax Credit as provided in Section 2011(b)(2) or the termination of the State Death Tax Credit as provided in Section 2011(f) as enacted by the Economic Growth and Tax Relief Reconciliation Act of 2001, but with the following modifications:

(1) the exclusion amount shall be: recognizing the exclusion amount of only (i)

(A) $2,000,000 for persons dying prior to January 1, 2012; ,

(B) (ii) $3,500,000 for persons dying on or after January 1, 2012 and prior to January 1, 2013; , and

(C) (iii) $4,000,000 for persons dying on or after January 1, 2013 and prior to January 1, 2026; and

(D) for persons dying on or after January 1, 2026, the indexed exclusion amount, plus any Illinois deceased spousal exclusion amount allowed under paragraph (2); , and

(2) for persons dying on or after January 1, 2026, if a valid election has been made under subparagraph (A) of paragraph (5) of subsection (c) of Section 2010 of the Internal Revenue Code allowing the person to take into account a federal deceased spousal unused exclusion amount for the purposes of calculating the person's federal estate tax, then the exclusion amount under paragraph (1) shall include the Illinois deceased spousal unused exclusion amount for the deceased spouse with respect to whom the federal election was made;

(3) for persons dying on or after January 1, 2026, the State Death Tax Credit shall be calculated only on the portion of the decedent's adjusted taxable estate that exceeds the exclusion amount determined under paragraph (1); and

(4) the State tax credit shall be calculated with a reduction to the adjusted taxable estate for any qualified terminable interest property election as defined in subsection (b-1) of this Section.

(b-1) The person required to file the Illinois return may elect on a timely filed Illinois return a marital deduction for qualified terminable interest property under Section 2056(b)(7) of the Internal Revenue Code for purposes of the Illinois estate tax that is separate and independent of any qualified terminable interest property election for federal estate tax purposes. For purposes of the Illinois estate tax, the inclusion of property in the gross estate of a surviving spouse is the same as under Section 2044 of the Internal Revenue Code.

In the case of any trust for which a State or federal qualified terminable interest property election is made, the trustee may not retain non-income producing assets for more than a reasonable amount of time without the consent of the surviving spouse.

"Taxable transfer" means an event that gives rise to a state tax credit, including any credit as a result of the imposition of an additional tax under Section 2032A(c) of the Internal Revenue Code.

"Transferee" means a transferee within the meaning of Section 2603(a)(1) and Section 6901(h) of the Internal Revenue Code.

"Transferred property" means:

(1) With respect to a taxable transfer occurring at the death of an individual, the deceased individual's gross estate as defined in Section 2031 of the Internal Revenue Code.

(2) With respect to a taxable transfer occurring as a result of a taxable termination as defined in Section 2612(a) of the Internal Revenue Code, the taxable amount determined under Section 2622(a) of the Internal Revenue Code.

(3) With respect to a taxable transfer occurring as a result of a taxable distribution as defined in Section 2612(b) of the Internal Revenue Code, the taxable amount determined under Section 2621(a) of the Internal Revenue Code.

(4) With respect to an event which causes the imposition of an additional estate tax under Section 2032A(c) of the Internal Revenue Code, the qualified real property that was disposed of or which ceased to be used for the qualified use, within the meaning of Section 2032A(c)(1) of the Internal Revenue Code.

"Trust" includes a trust as defined in Section 2652(b)(1) of the Internal Revenue Code.

(Source: P.A. 96-789, eff. 9-8-09; 96-1496, eff. 1-13-11; 97-636, eff. 6-1-12.)

Section 99. Effective date. This Act takes effect upon becoming law.