The federal estate tax exemption jumped to $15 million per person in 2026. Illinois did not follow. The state still taxes estates over $4 million, and that number has not moved in more than a decade.
That single fact catches more southwest suburban families every year, because the $4 million line is far closer than most people think. Understanding how the Illinois estate tax works, and why it is separate from the federal system, is the first step to keeping your family out of a bill they did not expect.
Two Systems, Two Very Different Numbers
The federal estate and gift tax exemption is now $15 million per person, made permanent under the One Big Beautiful Bill Act and indexed for inflation going forward (per the Internal Revenue Service). For the vast majority of families, federal estate tax is simply not a concern.
Illinois runs its own estate tax on top of that, set at $4 million per person under 35 ILCS 405/2. The exclusion has been frozen since 2013 and does not adjust for inflation (see the Illinois Attorney General estate tax fact sheet). A family can owe nothing to the IRS and still owe a significant sum to the state of Illinois.
The Cliff and the Missing Portability
Two features of the Illinois tax make it harsher than families assume. The first is the cliff. Once your estate crosses $4 million, the tax is calculated on the estate under a graduated schedule that climbs to a top rate of 16%, not only on the amount above the line.
The second is the absence of portability. Under federal law, a surviving spouse can inherit a deceased spouse’s unused exemption. Illinois offers no such carryover. If a couple leaves everything to the survivor with no planning, the first spouse’s $4 million exclusion is lost, and the survivor is left with a single $4 million threshold covering everything.
What Counts Toward Your $4 Million
Families underestimate their own estates because they picture cash. The taxable estate is broader than that. It generally includes your home and any other real estate, your retirement accounts, investment and bank accounts, business interests, and the death benefit of any life insurance policy you own personally.
In Cook County, Will County, and DuPage County, home values alone have done much of the work. A house that appreciated over twenty years, a healthy retirement balance, a brokerage account, and a term life policy can put a household over $4 million on paper without a single luxury in sight.
Planning Tools That Reduce the Exposure
The encouraging part is that this is one of the most solvable problems in estate planning, as long as you address it before it is urgent. A credit shelter trust, sometimes called a bypass trust, lets a married couple preserve both $4 million exclusions and shelter up to $8 million from Illinois tax.
Lifetime gifting also helps, and Illinois has no state gift tax of its own. Under federal rules for 2026, you can give $19,000 per recipient each year without touching your lifetime exemption. An irrevocable life insurance trust can move a policy’s death benefit out of your taxable estate entirely. Charitable giving also reduces the taxable estate for families who are inclined toward it.
A Note on Pending Legislation
Bills have been introduced in Springfield to raise the Illinois exclusion, including a proposal to double it to $8 million. As of 2026, none have passed, and the planning figure remains $4 million. It is wise to plan around the law as it reads today rather than a change that may or may not arrive.
What We See Most Often
A couple came to us convinced the estate tax was a problem for other people. Their home in DuPage County, two IRAs, a brokerage account, and a life insurance policy added to roughly $5.5 million. They were far below the federal exemption and comfortably above the Illinois one. With no plan in place, the survivor would have faced a state estate tax bill measured in the hundreds of thousands.
The fix was not exotic. We restructured how their assets were titled and built a credit shelter provision into their Trust so both exclusions were preserved. We also moved the life insurance into a Trust. The exposure came down sharply, and nothing about their lifestyle changed.
One Thing to Do This Month
Add up your home, retirement accounts, investments, business interests, and any life insurance you own. If the total is near or above $4 million, and especially if you are married and everything is set to pass to the survivor, your plan deserves a closer look this year.
An Estate Planning consultation will tell you where you stand against the $4 million line and which tools fit your situation. We run those numbers with families quietly and without pressure, so the decision is yours and it is an informed one.
