Illinois Estate Tax 2026: The $4 Million Threshold and the Federal Gap

Why Illinois catches more families than they expect

The $4M threshold is not a number reserved for the ultra-wealthy. In Illinois — particularly in the Chicago metropolitan area, the North Shore, and Lake County — it is a number that a professional family or a long-tenured business owner can approach or exceed through decades of ordinary asset accumulation.

• A home purchased in Naperville or Downers Grove for $350,000 in 1998 may now be worth $650,000–$900,000. Add a combined 401(k) of $1.5M, IRAs of $700K, brokerage of $400K, and a life insurance policy owned by the decedent of $500K — and that family's gross estate is $3.75M–$4.5M. A single year of portfolio growth can push them over the line.
• A business owner in Schaumburg whose practice or company is valued at $1.5M–$3M, combined with real estate, retirement savings, and life insurance, may easily cross $4M — without ever thinking of themselves as an estate tax concern.
• A retired professional couple on the North Shore with a home worth $1.2M, pension and retirement assets of $2.5M, and brokerage accounts of $800K may have a combined estate well above $4M — and only one $4M exemption available at the second death, with no portability to preserve the first spouse's unused exemption.
• A $4M Illinois estate paid zero Illinois estate tax through 2009, when the federal state death tax credit allowed a dollar-for-dollar federal offset. Illinois decoupled from federal law in 2010, permanently creating this state-only liability at the $4M threshold.
• By contrast: Oregon exempts only $1M, Massachusetts $2M, Washington (state) $3M. Illinois' $4M threshold is higher — but in the Chicago metro, asset levels that cross $4M are far more common than in most other states at $1M–$3M.

Illinois estate tax — approximate tax by estate size

Illinois computes estate tax using the pre-EGTRRA state death tax credit rate table (IRC §2011). The tax is computed on the entire gross estate using the graduated rate schedule, then reduced by the credit that would apply to the first $4,000,000 — so only the amount in excess of $4M is effectively taxed. Rates on that excess begin at approximately 10% and rise to 16% for very large estates.¹

The federal–Illinois estate tax gap

The most important planning concept in Illinois estate tax is the enormous gap between the state and federal exemptions:

This gap is the defining characteristic of Illinois estate planning for upper-middle-class families. A retired couple in Highland Park with a $9M combined estate owes approximately $787,000 in Illinois estate tax (at second death with no planning) and literally $0 in federal estate tax. The entire Illinois liability is a state-only obligation that many families don't discover until an estate is in administration — by which point it's too late to plan around it.

Because the federal exemption is now $15M per person ($30M per couple with portability), the vast majority of Illinois families affected by Illinois estate tax will never pay a dollar in federal estate tax. All planning focus must therefore be on reducing the Illinois exposure specifically.

What assets are included in the Illinois gross estate

Illinois is a common-law state — only half the step-up basis

Illinois is not a community property state. For jointly-owned assets between spouses, this has a meaningful impact on heirs compared to residents of Washington, California, or other community property states.

In a community property state, both halves of community property receive a step-up in basis at the first spouse's death under IRC §1014(b)(6). In Illinois, a common-law state, only the decedent's half receives the step-up. The surviving spouse's 50% retains its original cost basis.

Married couples: no portability and what to do instead

The federal estate tax allows the surviving spouse to carry forward the deceased spouse's unused exemption (the "DSUE" election, filed via IRS Form 706 within 9 months of death). Under OBBBA, a married couple has a combined federal exemption of $30M with portability.

Illinois does not recognize portability.² Each Illinois estate receives exactly one $4M exemption. If the first spouse to die leaves everything outright to the surviving spouse under the unlimited marital deduction, no Illinois estate tax is due at the first death — but the unused $4M Illinois exemption is permanently wasted. At second death, the combined estate faces only one $4M exemption.

Credit shelter trusts (bypass trusts) — the essential Illinois planning tool

At the first spouse's death, assets equal to the Illinois exemption ($4M) are placed in a credit shelter trust — also called a bypass trust or "B trust" — rather than passing outright to the surviving spouse. The trust benefits the surviving spouse during their lifetime (income distributions, and principal under HEMS or other standards). At the survivor's death, the trust assets pass to children or other beneficiaries without being included in the survivor's Illinois taxable estate. Every married Illinois couple with a combined estate above $4M should evaluate whether their estate plan contains credit shelter trust provisions that match the current Illinois exemption.

A credit shelter trust funded in 2006 — when many Illinois estate plans were drafted — may only be funded to $2M or $3.5M, reflecting older exemption levels. Illinois couples who haven't updated their estate plans in the last decade may have a trust structure that no longer captures the full $4M Illinois exemption at first death. An estate attorney should review these documents.

No Illinois gift tax — but lifetime gifts aren't a clean escape

Illinois imposes no standalone state gift tax.³ However, unlike Oregon (which offers a clean no-clawback rule), Illinois estate tax is computed based on the federal taxable estate — which includes "adjusted taxable gifts" made after 1976 above the annual exclusion that are not already in the gross estate. This means taxable lifetime gifts that reduce the Illinois gross estate may still increase the Illinois taxable estate through the adjusted taxable gifts inclusion, depending on how the federal estate is computed.

In practice, this is most relevant for large lifetime gifts (well above annual exclusion amounts). Annual exclusion gifts ($19,000 per recipient in 2026; $38,000 per recipient for a married couple using gift splitting) are not included in the federal taxable estate and therefore permanently reduce the Illinois estate tax base.

Illinois qualified farm property — partial estate tax exemption

Illinois provides a separate estate tax deduction for qualifying agricultural real estate. Under 35 ILCS 405/2, a qualified family farm may deduct the fair market value of qualifying agricultural property from the Illinois taxable estate, provided the property passes to a qualified heir (generally a family member) and continues in qualifying use. The deduction can be significant for downstate Illinois farm families whose land value substantially drives the gross estate above $4M.

Key requirements include: (1) the property must be used in agricultural operations at the time of death, (2) the heir must continue agricultural use for a specified period (recapture applies if use changes), and (3) proper elections and documentation must be filed with the Form IL-700. Illinois farm families whose gross estate exceeds $4M primarily due to land value — but who have limited liquidity — should evaluate this deduction with an Illinois estate planning attorney. The federal §2032A special-use valuation is a separate but potentially complementary election.

Filing requirements

Who must file

The personal representative of an Illinois resident decedent's estate must file Form IL-700 (Illinois Estate Tax Return) if the gross estate equals or exceeds $4,000,000.² The form is filed with the Illinois Attorney General's Office — not the Illinois Department of Revenue, which handles income and sales taxes. This distinction trips up some estate administrators and CPAs who are unfamiliar with Illinois estate tax procedure.

Deadline: 9 months from date of death

The Illinois estate tax return and any tax payment are due 9 months from the date of death.² A 6-month extension of time to file can be requested, but extensions do not extend the time to pay — tax owed accrues interest from the original 9-month deadline. Payment is made to the Illinois State Treasurer.

Estates that span the federal and Illinois thresholds

For estates between $4M and $15M, Illinois estate tax is due but no federal estate tax applies. Executors of these estates may still want to file a federal Form 706 within 9 months of death (plus extensions) to preserve the federal spousal portability election — even though Illinois does not recognize portability, the surviving spouse may benefit from a larger federal exemption for any federal-level exposure in the future. The federal and Illinois filings have different deadlines and go to different government agencies.

Non-resident decedents with Illinois real estate

Illinois imposes estate tax on Illinois-situs real property owned by non-residents, prorated based on the ratio of Illinois property to the total gross estate. A Wisconsin or Indiana resident who owns Illinois real estate (a vacation property, rental property, or commercial real estate) may have Illinois estate tax obligations. An Illinois estate attorney should evaluate any estate that includes Illinois-situs real property owned by a non-resident decedent.

Planning strategies to reduce Illinois estate tax

Illinois' combination of a $4M exemption, no portability, and graduated rates up to 16% creates a specific planning challenge — but also a specific set of well-understood strategies. These work best when implemented years before death.

1. Credit shelter trusts — foundational for married Illinois couples

As described above, credit shelter trusts are the most powerful Illinois-specific planning tool. They preserve the first spouse's $4M Illinois exemption rather than letting it lapse outright. The trust benefits the surviving spouse during their lifetime and passes to children at the second death outside of the surviving spouse's taxable estate. For a couple with a $9M combined estate, the difference between planning and not planning can be $600,000+ in Illinois estate tax.

2. Systematic annual gifting

Annual exclusion gifts permanently remove assets from the Illinois estate tax base. A married couple with two adult children can remove $76,000 ($19K × 2 × 2) per year with no federal gift tax return and no Illinois consequence. Over a decade, that's $760,000 permanently out of the Illinois estate. For families modestly above $4M, a sustained gifting program over 5–10 years can eliminate Illinois estate tax exposure entirely.

3. Irrevocable Life Insurance Trusts (ILITs)

Life insurance owned by the decedent is included in the Illinois gross estate under IRC §2042. Transferring an existing policy to an ILIT removes the death benefit from the Illinois estate — but requires the decedent to survive the transfer by 3 years to avoid estate inclusion under the federal 3-year rule. An ILIT funded with a new policy avoids the 3-year concern. For Illinois families who anticipate needing liquidity to pay the Illinois estate tax at second death without forced sales of illiquid assets (a business, real estate, or farmland), an ILIT holding a survivorship (second-to-die) life insurance policy is a common and efficient solution.

4. Spousal Lifetime Access Trusts (SLATs)

A SLAT allows one spouse to gift assets into an irrevocable trust for the benefit of the other spouse (and descendants), permanently removing those assets from both estates. The grantor spouse uses the federal lifetime exemption ($15M) to fund the SLAT — no current gift tax is owed. The assets are removed from the Illinois gross estate from the transfer date. Illinois families with combined estates in the $5M–$15M range who want to use their large federal exemption to reduce Illinois exposure can use SLATs effectively. Mutual SLATs must be structured to avoid the reciprocal trust doctrine. Each spouse should have separate SLAT documents prepared by an Illinois estate attorney.

5. Charitable planning — bequests and CRTs

Charitable bequests reduce the Illinois taxable estate dollar-for-dollar under the IRC §2055 estate deduction. A charitable remainder trust (CRT) funded with appreciated assets during life provides income to the donor, avoids capital gains on the transfer, generates a partial charitable income tax deduction, and removes the remainder interest from the Illinois gross estate at death. For Illinois estates modestly above $4M with charitable intent, a CRT can push the taxable estate below the filing threshold and also eliminate capital gains on appreciated securities or real estate. See Charitable Giving from an Inheritance for strategy details.

6. IRA beneficiary designation to charity

Retirement accounts are included in the Illinois gross estate AND heirs owe income tax on every distribution over the 10-year rule. Naming a charity as full or partial IRA beneficiary removes that value from the Illinois gross estate (charitable deduction) while satisfying charitable intent tax-efficiently — charities receive the IRA income-tax-free. For Illinois estates primarily composed of a large IRA, this combination of estate tax and income tax elimination can be more valuable than leaving the IRA to individuals. See Inherited IRA 10-Year Rule Guide.

7. Valuation discounts on business interests

Closely-held business interests (LLC membership interests, partnership interests, minority S-corp shares) can often be valued at a discount from pro-rata fair market value for estate tax purposes. Minority interest discounts (reflecting lack of control) and lack-of-marketability discounts (reflecting difficulty selling a private interest) of 20%–40% combined are defensible in many circumstances. For Illinois business owners whose estate is close to the $4M threshold, restructuring ownership of a family business to qualify for valuation discounts may reduce the Illinois estate tax. This requires formal business valuation and careful structuring — an estate planning attorney and a qualified business appraiser should be involved.

HB2601 — a proposed exemption increase not yet law

Illinois House Bill 2601 (2025 session) proposes to double the Illinois estate tax exemption from $4,000,000 to $8,000,000 per person, effective January 1, 2026. If enacted, this would eliminate Illinois estate tax exposure for a large share of the families currently affected — particularly those with estates between $4M and $8M, which includes most Chicago-area professional families.

How Illinois compares to other state estate taxes

What Illinois estate tax means if you're an heir

If you're inheriting from an Illinois resident with a substantial estate, here is how the estate tax affects your inheritance:

1. You don't file or pay the Illinois estate tax personally. The executor handles it from estate assets before making distributions to heirs. Illinois estate tax is paid at the estate level, not by individual beneficiaries. If the executor distributes $600,000 to you from a $5M estate after paying $111,000 in Illinois estate tax, the tax has already been deducted from the estate before your distribution.
2. You may receive less than the gross estate value suggests. A $5M estate may owe ~$111,000 in Illinois estate tax; a $7M estate may owe ~$358,000; a $9M estate may owe ~$613,000. Factor this in when estimating your expected inheritance. The estate tax is paid before distributions are made.
3. Verify the executor is filing Form IL-700 if the estate exceeds $4M. The filing deadline is 9 months after death, paid to the Illinois State Treasurer through the Illinois AG's office. Late filing and late payment accrue interest. Beneficiaries have an interest in ensuring the executor is meeting these deadlines.
4. Step-up in cost basis applies regardless of estate tax. Your inherited assets receive a new cost basis equal to the date-of-death fair market value under IRC §1014, regardless of whether the estate owed Illinois estate tax. The estate tax and the step-up basis are separate mechanisms. See Step-Up Basis Complete Guide.
5. Your inherited 50% of jointly-held property gets a step-up; the surviving spouse's pre-existing 50% does not. Illinois is a common-law state. Only the decedent's half of jointly-owned assets resets to date-of-death FMV. The surviving spouse's existing share retains its original cost basis.
6. IRAs are doubly taxed. The IRA was included in the Illinois gross estate and may have contributed to estate tax being owed. As a beneficiary, you also owe income tax on every dollar distributed from the inherited IRA over the 10-year rule. See Inherited IRA 10-Year Rule and the Drawdown Optimizer to model tax-efficient distribution strategies.
7. If the estate includes a closely-held business or farmland, liquidity can be a problem. Illinois estate tax is due in cash within 9 months of death. An estate primarily composed of illiquid assets (a business, farmland, or investment real estate) may need to sell assets under time pressure or borrow to fund the tax payment. If you're inheriting under these circumstances, discuss options — including an installment payment election — with the estate attorney early.

Frequently asked questions

My parent died in Illinois with a $3.8M estate. Is there Illinois estate tax?

No. The Illinois estate tax exemption is $4,000,000 per person. A $3.8M estate is fully exempt. No Form IL-700 filing is required. Note that the gross estate is measured at fair market value on the date of death — not original purchase price. If the estate includes a Chicago-area home worth $900,000 at death (even if originally purchased for $250,000 in 1992), that $900,000 counts toward the $4M threshold at full current value.

My parent died in Illinois with a $5M estate. How much Illinois estate tax is owed?

Approximately $111,000, based on the state death tax credit rate table applied to the $1M excess above the $4M exemption. This is an estimate; the actual figure depends on allowable deductions (debts, mortgages, administration expenses, charitable bequests, marital deductions) and the specifics of the Form IL-700 computation. The estate has 9 months from the date of death to file and pay.

My parents have a combined estate of $9M. How do they protect against Illinois estate tax?

With a credit shelter trust at the first spouse's death. Without planning, the survivor inherits the full $9M estate and at second death faces only one $4M Illinois exemption — Illinois estate tax of approximately $787,000 on the $9M estate. With a properly funded credit shelter trust, the first spouse's $4M is sheltered in trust at death, reducing the survivor's taxable estate to $5M and Illinois estate tax to approximately $111,000 — saving roughly $676,000. This requires updating the estate plan before death; retroactive corrections after the first spouse dies are generally not possible.

Does Illinois recognize the federal portability election?

No. The federal portability election — filed via IRS Form 706 within 9 months of death — allows the surviving spouse to add the deceased spouse's unused federal exemption to their own. Illinois has its own independent estate tax with no portability. Each Illinois estate gets one $4M Illinois exemption; unused exemption is permanently lost at death. This is why credit shelter trusts are the cornerstone of Illinois estate planning for married couples.

I live in Indiana but own a Chicago condo worth $600,000. Do I owe Illinois estate tax?

Potentially. Illinois imposes estate tax on Illinois-situs real property of non-residents, prorated based on the ratio of the Illinois property to the total gross estate. If your total estate is $6M and the Illinois condo represents $600K (10% of the estate), Illinois would compute estate tax on a pro-rated portion of the estate attributable to the Illinois property. An Illinois estate attorney should evaluate the exposure for any non-resident who owns Illinois real estate.

Can I make lifetime gifts to reduce my Illinois estate and avoid Illinois estate tax?

Annual exclusion gifts ($19,000 per recipient in 2026) permanently remove assets from the Illinois estate tax base with no clawback and no Illinois gift tax. A married couple with three adult children can remove $114,000 per year from the Illinois taxable estate through annual exclusion gifts alone. Over a decade, that's over $1M removed. For families modestly above $4M, a sustained annual gifting program combined with normal investment growth management can push the estate below the threshold. Larger lifetime gifts that exceed the annual exclusion use federal lifetime exemption and may interact with the adjusted taxable estate calculation for Illinois purposes — consult an Illinois estate attorney for large gift programs.

Does Illinois have an inheritance tax in addition to the estate tax?

No. Illinois does not have a separate inheritance tax. The Illinois estate tax is paid by the estate before distribution — not by individual heirs based on their relationship to the decedent. As a beneficiary, you do not personally owe Illinois tax on amounts you inherit. The estate paid before distributing to you. See Inheritance Tax by State for a national comparison. Of the five states that impose inheritance taxes (New Jersey, Pennsylvania, Maryland, Nebraska, and Kentucky for non-family beneficiaries), none is Illinois.

Will HB2601 raise the Illinois exemption to $8M?

As of June 2026, HB2601 has not been enacted. The current Illinois estate tax exemption is $4,000,000. Estate planning should be based on current law. An attorney can model the HB2601 scenario as a contingency, but making irrevocable planning moves based on legislation that has not yet passed carries risk of acting on a law that is amended or fails to pass. Monitor the Illinois General Assembly (ilga.gov) for updates.

Get matched with an advisor who understands Illinois estate planning

Illinois' $4M estate tax threshold is stuck in 2010 while Chicago-area home values, retirement accounts, and business interests have grown substantially. A Naperville couple with a home, two 401(k)s, a brokerage account, and life insurance may be closer to the $4M line than they realize — and without a credit shelter trust, they're handing the state hundreds of thousands of dollars that could go to their children. A fee-only financial advisor specializing in inheritance and estate planning can model your Illinois estate tax exposure under current law, evaluate whether your existing estate plan captures both spouses' $4M exemptions, coordinate with your estate attorney on credit shelter trust funding, and integrate a systematic gifting strategy to reduce the Illinois taxable estate before the first death triggers the no-portability trap.