Major changes to the federal estate tax law affect your planning strategy
“Wait, I thought the exemption was being cut in half next year?”
This question comes up frequently when discussing the federal estate tax exemption for 2026. For years, families worried about a scheduled sunset that would dramatically reduce the amount they could pass to heirs tax-free.
Then Congress changed everything with legislation enacted in July 2025. Instead of the exemption dropping from $13.99 million to roughly $7 million, it’s actually increasing to $15 million starting January 1, 2026.
This is excellent news for most families. But if you’re an Illinois resident, you still face a significant challenge that federal law can’t solve.
Understanding Federal Estate Tax Exemption 2026
The federal estate tax exemption 2026 represents the amount you can transfer at death (or during your lifetime through gifts) without owing federal estate tax. Starting January 1, 2026, that amount increases to $15 million per person.
This is a permanent increase, not a temporary bump. Congress ended the uncertainty that had many people rushing to complete estate planning before an expected sunset.
Key facts about the 2026 exemption:
- $15 million per individual – Single people and each spouse in a marriage get a $15 million exemption
- Portable for married couples – A surviving spouse can use their deceased spouse’s unused exemption, effectively doubling protection to $30 million
- Applies to gifts and estate – This is a unified credit that covers both lifetime gifts and transfers at death
- Permanent with inflation adjustments – The $15 million base will increase annually for inflation starting in 2027
- 40% tax rate above exemption – Amounts exceeding the exemption are taxed at a flat 40% rate
For most people nationwide, the federal estate tax exemption of 2026 eliminates federal estate tax concerns entirely. A married couple can now protect $30 million in assets.
How the Federal Estate Tax Exemption 2026 Changed
The path to the current law involved considerable uncertainty and last-minute changes.
- What was supposed to happen: The Tax Cuts and Jobs Act of 2017 approximately doubled the estate tax exemption but scheduled it to sunset on December 31, 2025. Without congressional action, the exemption would have dropped to roughly $7 million per person (the pre-2017 amount, adjusted for inflation).
- What actually happened: Federal legislation enacted on July 4, 2025, permanently increased the exemption to $15 million beginning January 1, 2026. This ended years of uncertainty about whether Congress would act.
- Why this matters: Many families delayed estate planning decisions, waiting to see whether the higher exemption would continue. Now that it’s permanent, you can plan with confidence about the federal exemption amount.
However, Illinois residents and federal estate tax planning still require attention because Illinois has its own separate estate tax with a much lower exemption.
Illinois Residents and Federal Estate Tax: The Critical Difference
The federal estate tax exemption for 2026 provides generous protection for most families. But Illinois residents and federal estate tax planning face a unique complication.
Illinois imposes its own state estate tax with an exemption of just $4 million per person. This creates a significant gap between state and federal thresholds.
Here’s what that means practically:
Federal exemption 2026: $15 million per person
Illinois exemption 2026: $4 million per person
An Evanston family with an $8 million estate faces:
- Federal estate tax: $0 (well below the $15 million exemption)
- Illinois estate tax: Approximately $680,000
The Illinois tax hits long before federal taxes become a concern for most people.
Additional complications for Illinois residents:
- No portability in Illinois – Unlike federal law, Illinois doesn’t let surviving spouses use a deceased spouse’s unused exemption. Each person gets only $4 million.
- Different tax rates – Federal tax is 40% on amounts over the exemption. Illinois uses progressive rates from 0.8% to 16%.
- No state gift tax – Illinois doesn’t tax lifetime gifts, but federal taxable gifts still affect your Illinois estate tax calculation.
This means Illinois residents and federal estate tax planning require strategies that address both tax systems simultaneously.
What Counts Toward Your Federal Exemption
The federal estate tax exemption 2026 covers all transfers you make, both during life and at death.
Your estate includes:
- Real estate – Your home, vacation properties, rental real estate
- Retirement accounts – 401(k)s, traditional IRAs, Roth IRAs, pensions
- Life insurance – Death benefits from policies you own
- Business interests – Value of businesses you own or partnership stakes
- Investment accounts – Brokerage accounts, stocks, bonds, mutual funds
- Bank accounts – All checking, savings, CDs, money market accounts
- Personal property – Vehicles, jewelry, art, collectibles
- Trust property – Assets you control through certain trusts
Lifetime gifts also count: The federal exemption is unified, meaning large gifts you make during your lifetime reduce the exemption available at death. However, you can make annual exclusion gifts without affecting your exemption.
In 2025 and 2026, you can gift $19,000 per person per year without it counting against your exemption. Married couples can gift $38,000 per person annually. These annual exclusion gifts are powerful estate planning tools.
Estate Planning Services for Federal and Illinois Estate Tax
Estate planning for Evanston families requires addressing both the federal estate tax exemption 2026 rules and Illinois’s separate tax system.
Comprehensive estate planning services include:
- Wills and trusts – Creating a last will and testament or revocable living trust that implements your wishes for asset distribution to loved ones while minimizing both federal and state estate taxes.
- Tax-efficient estate planning – Strategies specifically designed for Illinois residents to address the $4 million state exemption while taking advantage of the $15 million federal exemption.
- Credit shelter trusts – Also called bypass trusts, these help married couples fully utilize both spouses’ exemptions under both federal and Illinois law.
- Irrevocable trusts – Removing assets from your taxable estate while maintaining some control and providing for family members.
- Charitable planning – Incorporating charitable giving to reduce estate taxes while supporting causes you care about.
- Business succession planning – Minimizing estate tax impact while ensuring smooth business transition.
- Powers of attorney – Establishing financial power of attorney for managing your financial affairs if you become incapacitated, and healthcare power of attorney for medical decisions.
- Medical directives – Documenting your wishes for end-of-life care and medical treatment.
Most people benefit from conducting periodic reviews of their estate planning documents to ensure strategies remain aligned with current federal and Illinois law, changing asset values, and family circumstances.
Portability: A Key Advantage for Married Couples
One powerful feature of the federal estate tax exemption 2026 is portability, allowing a surviving spouse to use their deceased spouse’s unused exemption.
How portability works:
When one spouse dies with an estate below $15 million, the unused exemption can transfer to the surviving spouse. For example, if the first spouse used $10 million, the surviving spouse can claim the unused $5 million plus their own $15 million exemption—totaling $20 million in protection.
Important details:
- You must file to claim it – File Form 706 within the required timeframe (up to five years for late elections) to preserve portability
- Illinois doesn’t offer portability – This federal benefit doesn’t apply to Illinois’s $4 million exemption
An experienced estate planning attorney can help determine whether portability alone provides sufficient protection or whether trust-based planning better serves your family.
Strategic Estate Planning for 2026 and Beyond
The federal estate tax exemption for 2026 provides significant planning opportunities, especially for Illinois residents navigating two different tax systems.
Key strategies to consider:
- Lifetime gifting – Illinois has no gift tax, so strategic gifts reduce your taxable estate without state tax consequences
- Irrevocable Life Insurance Trusts (ILITs) – Remove life insurance death benefits from your taxable estate
- Annual exclusion gifting – Make systematic gifts of $19,000 per person ($38,000 for couples) to reduce your estate
- Charitable planning – Support causes while reducing estate taxes
- Business succession planning – Minimize tax impact while ensuring smooth transition
Each strategy has specific requirements. The estate planning process should be tailored to your unique situation, assets, and family goals.
Why Work With an Estate Planning Attorney in Evanston
Many attorneys offer estate planning services, but several factors make working with a local law firm valuable for federal and Illinois estate tax planning.
What sets our practice apart:
- Understanding both tax systems – We navigate federal estate tax exemption 2026 rules while addressing Illinois’s separate $4 million exemption and 16% maximum tax rate.
- Focused on your reality – You’re busy with work, family, maybe aging parents. We’ve streamlined the estate planning process to fit your actual life.
- Clear explanations – Federal and Illinois estate tax rules are complex. We explain your options in plain English so you can make informed decisions.
- Efficient service – We complete comprehensive estate planning documents without endless meetings or delays.
- Commitment to completion – Estate planning stays on most people’s to-do list for years. We help you finally get it done and feel the relief that comes with protecting your family.
A client recently shared, “I’d been worried about estate taxes affecting my kids’ inheritance. Now I understand the rules and have a plan that works for both federal and Illinois taxes.”
That confidence is what we want for every client.
Common Questions About Federal Estate Tax Exemption 2026
- Will the $15 million exemption stay permanent? Yes. The July 2025 legislation made it permanent with annual inflation adjustments starting in 2027. There’s no scheduled sunset.
- Do I still need estate planning if I’m under $15 million? Yes. Illinois residents must address the $4 million state exemption. Plus, estate planning covers incapacity planning, avoiding probate, protecting minor children, and ensuring your wishes are followed.
- Can my spouse use my unused federal exemption? Yes, through portability. You must file Form 706 to preserve this benefit, even if no tax is due.
- How do annual exclusion gifts work? You can gift $19,000 per person per year in 2026 without using your $15 million lifetime exemption. Married couples can gift $38,000 per person. These reduce your estate for both federal and Illinois purposes.
Estate Planning Costs and Free Consultation
Estate planning costs vary based on the services you need and the complexity of your situation.
During a free consultation, you can discuss your assets, family situation, and legal needs. We’ll explain which estate planning documents and strategies make sense for you and provide clear information about costs.
Common fee structures:
- Flat fee pricing – Many estate planning lawyers offer flat fees for standard services, giving you cost certainty upfront.
- Hourly rate – Complex situations involving business succession, intricate tax planning, or multiple trusts may be billed hourly.
Investing in proper estate planning now prevents costly problems later. For Illinois residents, good planning can save your family hundreds of thousands in state estate taxes alone.
Planning for Major Life Events
Certain moments create natural opportunities to create or update your estate plan.
Consider estate planning after these events:
- Marriage or significant partnership
- Birth or adoption of children
- Divorce or death of a spouse
- Receiving an inheritance or selling a business
- Significant appreciation in assets
- Reaching the $3-4 million asset threshold (Illinois estate tax concern)
- Major changes in federal or state tax law
Even without a trigger event, conducting periodic reviews ensures your plan remains current with your wishes and the law.
Working With Your Financial Advisor
Estate planning works best when coordinated with your overall financial plan.
Your estate planning attorney should work alongside your financial advisor, financial planner, accountant, and other professionals to create comprehensive strategies. This coordination ensures investment strategies, beneficiary designations, life insurance structure, and tax planning all support your estate plan goals.
Taking the Next Step
You’ve built financial security through years of work and smart decisions. Federal estate tax exemption 2026 provides generous protection, but Illinois’s $4 million exemption still creates real risk for many Evanston families.
Estate planning probably stays on your to-do list because finding time feels impossible. We understand.
Here’s what happens when you take action:
- Schedule a free consultation to discuss your assets, family, and goals without pressure or obligation.
- We explain your options for minimizing both federal and Illinois estate taxes while protecting your loved ones.
- You decide how to proceed with complete information about the process and costs.
- We create your estate plan efficiently and thoroughly.
- You complete your plan and have peace of mind knowing your family is protected.
Most people describe feeling relieved after finally getting their estate plan done. That’s exactly what we want for you.
Frequently Asked Questions
- What is the federal estate tax exemption for 2026?
- The federal estate tax exemption for 2026 is $15 million per person. This permanent exemption (enacted July 2025) replaces the previous scheduled sunset and will increase annually for inflation starting in 2027. Married couples can protect up to $30 million through portability.
- How does the federal exemption affect Illinois residents?
- Illinois residents and federal estate tax planning must address both the $15 million federal exemption and Illinois’s separate $4 million state exemption. Most Illinois residents won’t owe federal estate tax, but estates over $4 million still face the Illinois estate tax up to 16%. Proper planning requires strategies for both tax systems.
- Can married couples combine their federal exemptions?
- Yes, through portability. When one spouse dies, the surviving spouse can claim any unused portion of the deceased spouse’s $15 million exemption by filing a federal estate tax return. This effectively doubles protection to $30 million for married couples, though Illinois doesn’t offer similar portability.
- Do lifetime gifts count against the federal estate tax exemption in 2026?
- Yes. The federal exemption is unified—large lifetime gifts reduce the exemption available at death. However, annual exclusion gifts ($19,000 per person in 2026, or $38,000 for married couples) don’t count against your lifetime exemption. Strategic gifting can reduce your estate without using the exemption.
- Should I update my estate plan for the 2026 changes?
- If your estate plan was created assuming a lower federal exemption or an expected sunset, reviewing it makes sense. The higher permanent exemption may allow simpler strategies. Additionally, if your assets have grown or you’ve had significant changes in your family or business, conducting periodic reviews ensures your plan remains effective.
- What happens if I don’t use my full federal exemption?
- For single individuals, the unused exemption is simply lost at death. For married couples, a surviving spouse can claim the deceased spouse’s unused exemption through portability, but only if you file the proper federal estate tax return. An experienced estate planning attorney can help ensure you preserve this valuable benefit.
Pestinger Law
1124 Florence Avenue
Evanston, Illinois 60202
(847) 884-8400
Serving clients throughout the greater Evanston area, including Wilmette, Skokie, Kenilworth, Lincolnwood, and Rogers Park, with comprehensive estate planning, wills, trusts, powers of attorney, elder law services, and federal and Illinois estate tax planning.
This blog post is for informational purposes and does not constitute legal advice. Consult with an estate planning attorney to discuss your specific situation.
