Illinois Estate Tax: Why $4 Million Is the Number That Matters

Most families stopped worrying about estate tax years ago, and for federal purposes most of them are right to. The federal exemption sits at roughly $15 million per person for 2026 and is indexed going forward. For an Illinois family, that federal number is a distraction, because Illinois runs its own estate tax on entirely different math.

What Illinois does

Illinois imposes an estate tax with a $4 million exclusion. Three features make it harsher than the number alone suggests.

It is not indexed for inflation. The threshold does not rise with the value of your house or your retirement account, so estates cross it through nothing but the passage of time.

There is no portability. Under federal law, a surviving spouse can carry over the unused portion of a deceased spouse’s exemption. Illinois has no equivalent. If the first spouse to die leaves everything outright to the survivor, that spouse’s $4 million exclusion is simply lost, and the survivor’s estate faces the tax with only one exclusion instead of two.

The rates climb quickly. An estate a few million dollars over the line can generate a six figure liability.

Who gets caught

Not who people expect. Illinois estate tax is a middle class problem in a way the federal tax is not.

Add a paid off home in a strong market, a retirement account built over a full career, a life insurance policy owned personally rather than in trust, and a small business or a farm, and $4 million arrives sooner than families anticipate. Life insurance is the most common surprise, because the death benefit counts toward the taxable estate when the decedent owned the policy.

What planning looks like

The absence of portability is the central design problem, and there are two standard answers. The first is a credit shelter or bypass trust at the first death, which uses the first spouse’s exclusion rather than wasting it. The second is the Illinois-only QTIP election, which lets an estate make a marital deduction election for Illinois purposes separately from the federal election. Used properly, it allows a married couple to shelter the first spouse’s $4 million while still deferring tax and keeping assets available to the survivor.

It is the workaround most Illinois practitioners reach for first, and it has to be built into the documents in advance rather than discovered at the return. Lifetime gifting is often part of the plan, because Illinois imposes no separate gift tax. Be careful with the arithmetic rather than assuming a gift disappears, since adjusted taxable gifts figure into the Illinois computation, and run the numbers with counsel before making large transfers. An irrevocable life insurance trust moves a policy out of the taxable estate. Illinois also provides relief for qualified farm property, which you should examine rather than assume.

The Texas comparison, and a caution about moving

Texas has no state estate tax, which is one reason the move shows up so often in these conversations. But changing your mailing address is not the same as changing your domicile, and Illinois real property remains subject to Illinois estate tax regardless of where the owner lives. A move that is real should be documented as real: voter registration, driver’s license, vehicle registration, where you actually spend your time, and where your advisors and accounts are.

If your Illinois estate is anywhere near $4 million, or if a first spouse has already died without bypass planning, run the arithmetic now. Call or text 512.761.8479.