Illinois imposes a separate estate tax with a $4 million exemption per person, far lower than the 2026 federal exemption of $13.61 million. Estates above $4 million are taxed at rates ranging from 0.8% to 16% on the excess. Unlike the federal government, Illinois has no gift tax, making lifetime gifting one of the most effective tools for reducing Illinois estate tax exposure. Illinois doesn't have portability, a married couple can't combine exemptions without proper trust planning.
Illinois is one of a dozen states that imposes its own estate tax, separate from the federal estate tax. The Illinois exemption, $4 million per person, hasn't kept pace with inflation or with the federal exemption, meaning a larger share of Illinois estates face state-level taxation than many families expect. A Wilmette homeowner with a $700,000 home, $2.5 million in retirement accounts, and $1.5 million in investment accounts has an estate of $4.7 million, fully above the Illinois threshold.
The Illinois estate tax rates are progressive, starting at 0.8% on the first dollar above $4 million and reaching 16% on the amount above approximately $10.04 million. On a $5 million estate, the Illinois tax owed is roughly $40,000-$60,000. On a $7 million estate, roughly $300,000-$400,000. These are significant numbers that proper planning can substantially reduce.
Illinois doesn't allow portability between spouses, a surviving spouse can't simply inherit the deceased spouse's unused exemption, as is possible at the federal level. To effectively double the exemption to $8 million for a married couple, you must use a bypass trust (also called a credit shelter trust or AB trust) that captures the first spouse's exemption at death. Without this trust, the second spouse's estate only gets one $4 million exemption.
The most powerful tool for reducing Illinois estate tax is lifetime gifting. Illinois has no gift tax, you can give away unlimited amounts during your lifetime and reduce your taxable estate dollar for dollar. Combined with the federal annual gift tax exclusion ($18,000 per recipient in 2026), a couple with multiple children and grandchildren can systematically reduce their estate by $100,000+ per year in tax-free gifts.
Key facts
- Illinois estate tax exemption: $4 million per person (not indexed for inflation)
- Federal estate tax exemption (2026): $13.61 million per person (scheduled to revert to ~$7M after 2025 TCJA sunset)
- Illinois estate tax rates: 0.8% to 16% on the amount above $4 million
- Illinois has no portability, married couples must use bypass trust planning to use both exemptions
- Illinois has no gift tax, lifetime gifting directly reduces your taxable estate
- The Illinois estate tax return (Form 700) is due 9 months after the date of death
What is a bypass trust and do I need one in Illinois?
A bypass trust (also called a credit shelter trust or AB trust) is an irrevocable trust funded at the first spouse's death with assets up to the Illinois estate tax exemption ($4 million). These assets are sheltered from estate tax at the surviving spouse's death, effectively doubling the couple's combined exemption from $4 million to $8 million. For married couples in the Northern Suburbs with estates above $4 million, bypass trust planning is almost always worth the cost of the legal work.
Can I reduce my Illinois estate tax by giving money to my children?
Yes, and this is one of the most practical strategies available. Illinois has no gift tax. Federal gift tax rules allow you to give $18,000 per recipient per year ($36,000 per couple) without any gift tax filing requirement. Any gifts above that amount use part of your federal lifetime exemption but don't trigger Illinois estate tax, because Illinois doesn't have a gift tax and doesn't claw back lifetime gifts into the estate. Systematic gifting over multiple years can meaningfully reduce an Illinois estate.
