Wealthy move money to avoid estate tax

Wealthy move money to avoid estate tax

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SPRINGFIELD — While the only certainties in life may be death and taxes, some wealthy Illinoisans are finding a way to die without their estates paying a dime to Spring-field.

“I advise clients to move to a state that does not have an estate tax,” said Christine Albright, an expert in estate planning for the Chicago law firm Holland and Knight.

Illinois is one of 18 states that currently have an inheritance tax, or estate tax.

The Illinois tax has a complicated history. But in 2011 all assets greater than $2 million could be taxed, and this year the exemption level was raised to $4 million.

For many capital-intensive, family-owned businesses such as farms, heirs are faced with the prospect of selling all or a portion of the business to pay the estate taxes, said John Scholl, former president of American Farmlands Trust. This makes it difficult for businesses to pass from one generation to another, he said.

While most people won’t die with estates large enough to be affected by the tax, there are reasons for all Illinoisans to be concerned.

A variety of legal strategies are employed to avoid paying the tax, but an increasingly common approach Illinois wealth advisors are recommend-ing is moving to a state without an estate tax.

“When you have high-income people leaving Illinois, it means they will be spending less in the state, investing less in the state and creating fewer jobs,” said Travis H. Brown, author of “How Money Walks.”

Brown, a St. Louis author, tracked the migra-tion of wealth from state to state for his 2013 book.

During the past 15 years Illinois has experienced a net loss of $29.2 billion in adjusted gross income through people migrating to other states.

The leading states for wealthy Illinoisans to move to are:

 Florida, which has captured a net gain of $6.7 billion from the Land of Lincoln.

 Arizona, which has netted $2.7 billion from Illinois.

 California, which has captured $2.2 billion from the Prairie State.

 Wisconsin, which captured a net of $2.2 billion in wealth from Illinois.

 Texas, which netted $2.1 billion from Illinois.

Each of these states does not have an estate tax.

“Whether a state has or doesn’t have an estate tax often is indicative of how they view taxes overall,” Brown said. “With the exception of California, which is a high-tax state, most of these other states have lower taxes. In the case of Wisconsin, I think it is benefiting from its proximity to Illinois.”

Albright noted that some of her clients are more sensitive to estate tax issues, while others are more concerned about income taxes. The 2011 Illinois General Assembly’s vote to increase income taxes prompted some of her clients to consider leaving the state, she said.

The national trend among states is to phase out the tax.

Just this year both North Carolina and Indiana began the process of phasing out their estate or inheritance taxes. And a repeal of Tennessee’s estate tax is slated to go into effect in 2016.

“As these repeals go into effect, I anticipate less wealth will migrate from these states,” Brown said. “For example, we have seen a lot of wealth migration from Indiana to Florida. I anticipate that will slow down now.”

Albright said it is impor-tant to remember that wealthy people move for a variety of reasons, not just because of estate taxes.

“People move because they want to live in a warmer climate. But Illinois also made a major increase in the state income tax not long ago. That also has encouraged some Illinoisans to con-sider leaving,” she said.

Some proponents of the estate tax are skeptical that it plays a role in de-termining whether people move.

“People don’t make decisions about where to live based on taxes,” House Majority Leader Barbara Flynn Currie, D-Chicago, said. “If you look at the evidence about high tax states, you’d find that lots of people decide to live in them – just look at California.”

But Brown disagreed with Currie’s assessment.

“This is absolutely ludicrous,” he said. “People move for a variety of reasons and taxes are one of them. California has been losing population, not gaining it.”

According to the U.S. Census Bureau, 1.3 million people left California between 2000 and 2008.

Albright agreed that taxes are a factor for why some people move.

“I was advising one couple,” she said. “The woman wanted to move to Florida to avoid the estate tax. Her husband was lukewarm on the idea. But on his deathbed he said, ‘You will move to Flor-ida.’”

Supporters of the tax focus much of their atten-tion on fairness.

“I think income ought to be taxed and inherited wealth ought not to be the measure of an individual’s worth in our society,” Currie said. “People like Bill Gates and Warren Buffett support the tax so that a portion of their wealth goes to offset ser-vices in society like schools.”

During the last fiscal year the state collected $285 million from the estate tax. That accounts for less than 1 percent of the $34.6 billion in reve-nues the state received during that period.

No estimate exists for how much revenue is lost from Illinoisans leaving the state because of taxes.

“The state is broke and they are looking for reve-nue from any place they can get it,” Albright said. “That’s why they are pushing for this tax.”

For many, leaving the state is not an option.

Bob Bonifaf owns a company he’s built over 45 years called Alarm Detections Systems Inc. Headquartered in Aurora, Ill., he employs 225 people, including several family members. He’s not leaving Illinois.

“It’s a very intimidating law,” he said. “It does everyone harm. … they’re collecting a tax on what you already paid a tax on. It’s like killing the goose that laid the golden egg—they should do away with the tax, but I’m not op-timistic. This is a big spending state.”


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