Just got home from Ilinois, lock the front door, oh boy!
—Lyrics of John Fogerty in Creedence Clearwater
Revival ’s song “Looking Out My Back Door”
In 2011 Illinois raised its individual income tax rate to 5%, part of a $7 billion tax increase on its residents. Since then, you have undoubtedly read about the numerous Illinois employers that have fled or threatened to flee the state. Many of those employers were given financial incentives to keep them here.
Voting with their feet
Regrettably, families are also acting like employers— voting with their feet and fleeing Illinois. Perhaps it is simply a coincidence, but property values along parts of the west coast of Florida, a popular retirement destination for Illinoisans, began to appreciate the same month the Illinois tax increase became effective.
In an attempt to stem the exodus, Illinois increased its state estate tax exemption. The state estate tax exemption in 2013 was $4 million. While an increased exemption is welcome, many are surprised to learn that Illinois actually imposes an estate tax of about 9% (the state estate tax rates vary, so the above is an average effective tax rate).
Walking away with your assets
Unlike the income tax, leaving Illinois may not avoid the Illinois state estate tax. If an Illinois family moves out of state and keeps a home here, will it still pay an Illinois estate tax? Yes, those families most certainly will. Why? Because only Illinois residents get the benefit of the Illinois state estate tax exemption.
And, on the income tax side, Illinois is getting more aggressive. In 2011 the Illinois Department of Revenue increased the number of auditors by nearly 40% to search out and tax folks who claim to be a resident of another state but still earn income in Illinois. The Illinois government clearly do not want to let its people go. Nor does it want to let its trusts go.
Irrevocable trusts created by people when they were Illinois residents will be treated as Illinois trusts — and subject to Illinois income tax — for as long as the trusts exist. Illinois will tax (or at least try to!) any assets former residents leave behind in trust.
So, a few years after our $7 billion tax increase, Illinois has over 81,000 fewer members of its labor force and the worst bond rating of any state in the union. Greece could teach our leaders about fiscal prudence. Perhaps the governor better lock the front door to keep the rest of us here.
Are you considering crossing the Red Sea?
You're invited to a free educational event for Illinois residents who own property in Florida. Find out how to improve the protection of your assets, discover real estate and tax savings, and learn about the steps necessary to establish Florida residency. Sponsored by Coyle Financial Counsel, join us on September 17th in Oak Brook, Illinois. Robert T. Napier is a featured presenter.
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[caption id="attachment_1905" align="alignleft" width="150"] Robert Napier[/caption]
Robert T. Napier, JD, CPA, is a partner at the law firm of Harrison and Held, LLP. He received his B.S. from Marquette University in 1984, became a Certified Public Accountant (CPA) in 1986, and received his J.D. from De Paul University College of Law in 1987.
Mr. Napier has been quoted in The Wall Street Journal and Barron’s Magazine. He has lectured for the Chicago Bar Association, the Illinois CPA Society, and the Illinois Institute For Continuing Legal Education(IICLE).
Posted on Tue, August 25, 2015