Did transferring an aircraft from its owner to the owner's revocable trust before death trigger Illinois Aircraft Use Tax even without consideration?

Plain-English summary

Transferring an aircraft from an individual to the individual's revocable trust before death was a taxable event for Illinois Aircraft Use Tax.

The transfer involved no monetary consideration and was part of an estate plan. The trust was revocable before the grantor's death and benefited the grantor and two adult children.

Illinois focused on legal ownership: the aircraft moved from one legal entity—the individual—to another—the trust. Aircraft Use Tax applied to aircraft acquired by gift, transfer, or non-retail purchase.

The surviving-spouse exemption did not apply

Illinois had a statutory exemption for a gift to a surviving-spouse beneficiary during estate administration. The Department said it could not expand or narrow that exemption.

The exemption did not cover this transfer because the beneficiary was not a surviving spouse for the transaction described and the aircraft was transferred to the trust before death, not during estate administration.

What this means for you

Aircraft owners funding trusts

No sale price does not mean no Aircraft Use Tax. A transfer to a separate trust can be taxable as a gift or transfer.

Estate planners

The timing and recipient matter. The narrow surviving-spouse exemption described applies during estate administration and does not extend automatically to pre-death trust funding.

Common questions

Q: Did the lack of consideration make the transfer exempt?
A: No.

Q: Did revocability prevent tax?
A: No. Illinois treated the trust as a separate legal entity receiving the aircraft.

Q: Why did the surviving-spouse exemption fail?
A: The transfer occurred before death and estate administration, and the statutory beneficiary condition was not met.

Citations and references

• 86 Ill. Adm. Code 152.101 — Aircraft Use Tax on gifts, transfers, and non-retail purchases.
• 35 ILCS 158/10-15(iv) — surviving-spouse exemption during estate administration.

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2011.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2011/st-11-0092.pdf

Original ruling text

ST 11-0092-GIL 11/08/11 AIRCRAFT USE TAX
Aircraft Use Tax liability is incurred on aircraft acquired by gift, transfer, or non-retail purchase.
See 86 Ill. Adm. Code 152.101. (This is a GIL.)

November 8, 2011

Dear Xxxxx:
This letter is in response to your letter dated July 13, 2011, in which you request information.
The Department issues two types of letter rulings. Private Letter Rulings (“PLRs”) are issued by the
Department in response to specific taxpayer inquiries concerning the application of a tax statute or
rule to a particular fact situation. A PLR is binding on the Department, but only as to the taxpayer
who is the subject of the request for ruling and only to the extent the facts recited in the PLR are
correct and complete. Persons seeking PLRs must comply with the procedures for PLRs found in the
Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General Information Letter
(“GIL”) is to direct taxpayers to Department regulations or other sources of information regarding the
topic about which they have inquired. A GIL is not a statement of Department policy and is not
binding on the Department. See 2 Ill. Adm. Code 1200.120. You may access our website at
www.tax.illinois.gov to review regulations, letter rulings and other types of information relevant to your
inquiry.
The nature of your inquiry and the information you have provided require that we respond with
a GIL. In your letter you have stated and made inquiry as follows:
I represent INDIVIDUAL in his capacity as the Trustee of the TRUST dated DATE
(‘Trust’). The Grantor of the Trust was PERSON who designated INDIVIDUAL as the
initial Trustee, and reserved the exclusive and express right to amend the Trust at any
time prior to his death. The Trust was part of an extensive estate plan that I prepared
for PERSON. During the time I was representing PERSON, I did not represent
INDIVIDUAL.
At the time that the Trust was created, PERSON personally was the sole owner of an
aircraft the title for which he transferred to the Trust via a ‘Bill of Sale and Assignment’
document dated prior to his death, and which I prepared for PERSON. There was no
consideration for the transfer from PERSON personally to INDIVIDUAL as the initial
Trustee of the Trust. The Trust was for the benefit of PERSON as the Grantor and his
two adult children.
On DATE-2, I sent to the Civil Aviation Registry of the Federal Aviation Administration
(‘FAA’) the Bill of Sale previously described, an ‘Aircraft Bill of Sale’ an [sic] ‘Aircraft
Registration Application’ (and the appropriate fee) both of which documents were
provided to me by the FAA. I was provided with a copy of the Bill of Sale bearing the
FAA’a [sic] time stamp of ‘DATE-3.’
PERSON died on DATE-4. Subsequent to PERSON’S death, INDIVIDUAL initiated the
administration of PERSON [sic] entire estate which involved another trust containing a
significant number of various types of assets in addition to the Trust. On December 19,

2009, I contacted EMPLOYEE of the Division of Aeronautics for the Illinois Department
of Transportation (‘IDOT’) regarding my communications with the FAA, and EMPLOYEE
promptly responded by sending me IDOT’s ‘Application for Registration of Federal
Aircraft Certification’ and your Department’s ‘RUT-75 Aircraft/Watercraft Use Tax
Transaction Return’ forms.
Subsequent to my contact with EMPLOYEE, INDIVIDUAL and my attention was
diverted to other more pressing aspects of the administration of PERSON’S estate. At
this time, I wish to resume the steps necessary to have the title of the aircraft properly
registered in the name of the Trust with IDOT.
I apologize for this extensive explanation. However, I felt such an explanation was
necessary as a basis of my following question. Since the transfer of the title to the
aircraft was part of PERSON’S Estate Plan, there was no monetary consideration
involved in the transfer, and the Trust was revocable at any time prior to PERSON’S
death, was there a state transfer tax of any category due as a result of the transfer of
title from PERSON personally to INDIVIDUAL as Trustee of PERSON’S Trust? I am
familiar with the exemption from the RUT in the case of a transfer of an asset to the
surviving spouse of a decedent. Is not PERSON’S transfer of the title of the aircraft
from himself personally to his designated Trustee of his (PERSON’S) Trust of a similar
nature? It does not appear that PERSON’S transfer of title from himself to the Trustee
of his grantor Trust is a taxable event.
I would appreciate your consideration of my question, and your timely reply. There is a
potential sale pending for which the proper title to the aircraft is essential.
Thank you for your assistance in this matter, and I look forward to your reply.

DEPARTMENT’S RESPONSE:
For general information purposes, the transfer of an aircraft from an individual owner to a trust
is a taxable event. This result is because the aircraft is being transferred from one legal entity to
another (from a person to a trust). Aircraft Use Tax liability is incurred on aircraft acquired by gift,
transfer, or non-retail purchase. See 86 Ill. Adm. Code 152.101. The exemption for a transfer that is a
gift to a beneficiary in the administration of an estate if the beneficiary is a surviving spouse is a
statutory exemption. See 35 ILCS 158/10-15(iv). The Department of Revenue is unable to either
expand or narrow the scope of this exemption. This exemption does not apply if the beneficiary is not
a surviving spouse. In addition, this exemption does not apply if the transfer occurs prior to the
administration of an estate, as would be the case when an aircraft is transferred from an individual to
a trust prior to the individual’s death.
I hope this information is helpful. If you require additional information, please visit our website
at www.tax.illinois.gov or contact the Department’s Taxpayer Information Division at (217) 782-3336.
Sincerely,

Samuel J. Moore
Associate Counsel