A business owner calls, voice tight with stress. “My financial advisor just told me my estate will owe over $600,000 in Illinois estate taxes. I thought the exemption was almost $14 million?”
This conversation happens often. People confuse the federal estate tax exemption with Illinois’s much lower threshold. While the federal exemption is $13.99 million for 2025 (increasing to $15 million in 2026), Illinois estate tax exemption remains stuck at just $4 million per person.
That gap creates a serious problem for many Evanston families who have built modest wealth through decades of work, saving, and owning property in an expensive market.
Understanding the Illinois Estate Tax Exemption
Illinois estate tax exemption is the amount your estate can be worth at death before Illinois imposes estate tax. Any value above $4 million gets taxed at progressive rates up to 16%.
Here’s what makes Illinois different from federal law:
- The threshold is significantly lower – Federal exemption is $13.99 million (2025) or $15 million (2026). Illinois stays at $4 million with no inflation adjustments.
- No portability – Under federal law, a surviving spouse can use their deceased spouse’s unused exemption. Illinois doesn’t allow this. Each person gets only $4 million, period.
- Rates climb quickly – The effective marginal tax rate in Illinois ranges from 8% to approximately 29% once you exceed the exemption.
- Everything counts – Your estate includes your house, retirement accounts, life insurance payouts, business interests, investment accounts, and personal property.
Many Evanston residents hit the $4 million threshold without realizing it, especially when you add up home equity, retirement savings, life insurance, and other assets.
How Illinois Estate Tax Changes 2026 Affect Your Planning
Illinois estate tax changes 2026 create both opportunities and challenges for estate planning.
- What’s changing federally: The federal estate tax exemption increases to $15 million per person starting January 1, 2026. This permanent increase (enacted July 2025) means most people won’t face federal estate taxes.
- What’s NOT changing in Illinois: Illinois estate tax exemption stays at $4 million. No increases are planned despite multiple legislative proposals. This creates a widening gap between federal and state thresholds.
- Why this matters: An estate worth $8 million faces zero federal estate tax but owes Illinois approximately $680,000. The state tax hits long before federal taxes become a concern.
For married couples, the lack of portability means careful planning is essential. Without proper estate planning documents and strategies, couples can’t fully protect $8 million even though each spouse has a $4 million exemption.
What Gets Included in Your Illinois Estate
Illinois estate tax applies to your total estate value, which includes more than most people realize.
Assets that count toward the $4 million threshold:
- Real estate – Your home, vacation property, rental properties at fair market value
- Retirement accounts – 401(k)s, IRAs, pensions, and other tax-deferred accounts
- Life insurance – Death benefits from policies you own count in your estate
- Business interests – Value of any business you own or partnership stakes
- Investment accounts – Brokerage accounts, stocks, bonds, mutual funds
- Bank accounts – Checking, savings, CDs, money market accounts
- Personal property – Vehicles, jewelry, art, collections, furniture
A typical Evanston family might have:
- Home valued at $1.2 million
- Retirement accounts totaling $1.8 million
- Life insurance death benefit of $1 million
- Investment accounts of $600,000
- Personal property and savings of $400,000
That’s $5 million – well over the Illinois estate tax exemption, even though it represents decades of modest saving and appreciation in a high-cost area.
Illinois vs. Federal Estate Tax: Key Differences
Understanding how Illinois estate tax differs from the federal estate tax helps you create better planning strategies.
Exemption amounts:
- Federal 2025: $13.99 million per person
- Federal 2026: $15 million per person
- Illinois 2025-2026: $4 million per person (no change)
Portability:
- Federal: Yes – surviving spouses can use the deceased spouse’s unused exemption
- Illinois: No – each person gets only $4 million
Tax rates:
- Federal: 40% flat rate above exemption
- Illinois: Progressive rates from 0.8% to 16%
Gift tax:
- Federal: Yes – lifetime gifts count against the exemption
- Illinois: No state gift tax
In 2025 and 2026, you can gift $19,000 per person per year without it counting against any exemption. Married couples can gift $38,000 per recipient annually. These gifts reduce your estate while allowing you to see loved ones benefit during your lifetime.
Who Needs to Worry About the Illinois Estate Tax
Illinois estate tax exemption affects more people than you might think, especially in Evanston’s higher-cost housing market.
You should be concerned if:
- Your assets total more than $4 million
- You own property in Evanston (real estate values have appreciated significantly)
- You have substantial retirement savings
- You carry life insurance that would push your estate over $4 million
- You own a business or professional practice
Even if you’re close to $4 million, proactive estate planning makes sense. Asset values fluctuate, and proper planning prevents unexpected estate tax bills for your family members after your death.
Estate Planning Strategies to Reduce Illinois Estate Tax
Illinois estate tax exemption planning involves specific strategies that protect assets while ensuring your wishes are fulfilled.
- Lifetime gifting strategies: Since Illinois has no gift tax, you can make strategic lifetime gifts to reduce your estate. Annual exclusion gifts ($19,000 per person in 2025-2026) don’t count against your federal or Illinois exemptions.
- Irrevocable life insurance trusts (ILITs): Life insurance you own counts in your estate. An ILIT owns your life insurance policy instead, keeping death benefits out of your taxable estate while still providing for your family.
- Charitable giving: Assets left to qualified charities are deductible from your estate. Charitable remainder trusts let you receive income during life while reducing your taxable estate.
- Marital planning: While you can leave unlimited assets to your spouse tax-free, proper planning ensures both spouses’ exemptions are used efficiently. Credit shelter trusts (also called bypass trusts) help couples protect up to $8 million.
- Business succession planning: If you own a business, proper succession planning can reduce estate tax while ensuring a smooth transition to the next generation or other successors.
- Qualified Personal Residence Trust (QPRT): This allows you to transfer your home at a reduced value for estate tax purposes while continuing to live in it.
Each strategy has specific requirements and tax implications. An experienced estate planning attorney can help you decide which approaches make sense for your situation and help you create a complete estate plan.
Estate Planning Services in Evanston
Estate planning encompasses more than just minimizing taxes. A complete plan addresses all your family’s legal needs.
Comprehensive estate planning services include:
- Wills and trusts – Creating a last will and testament or revocable living trust that states your wishes for asset distribution, names guardians for minor children, and can help avoid probate.
- Tax planning strategies – Addressing Illinois estate tax exemption and federal estate tax through trusts, gifting strategies, and proper asset structuring.
- Powers of attorney – Establishing financial power of attorney so trusted individuals can manage your financial affairs and make financial decisions if you become incapacitated.
- Healthcare powers of attorney and medical directives – Ensuring someone can make medical decisions for you and documenting your wishes for end-of-life care.
- Business succession planning – Creating plans for smooth business transition while minimizing estate tax impact.
- Charitable planning – Incorporating charitable giving into your estate plan to support causes you care about while reducing estate taxes.
- Asset protection – Strategies to protect assets from creditors, lawsuits, and unnecessary taxation.
Most people benefit from conducting periodic reviews of their estate planning documents, especially after major life events or significant changes in asset values or tax laws.
Why Work With an Estate Planning Attorney in Evanston
Many attorneys offer estate planning services, but several factors set our law firm apart for Illinois estate tax exemption planning.
- Focused on your actual life – We understand you’re busy managing work, family, maybe aging parents. The estate planning process needs to fit your reality, not a one-size-fits-all template.
- Clear guidance through complex tax rules – Illinois estate tax exemption planning involves navigating both state and federal law. We explain your options clearly so you can decide what makes sense for your goals.
- Efficient service – We’ve streamlined the estate planning process to prepare comprehensive estate planning documents without endless meetings or delays.
- Commitment to getting it done – Estate planning stays on most people’s mental to-do list for years. We help you finally complete your plan and feel the relief that comes with protecting your loved ones.
A client recently shared, “I’d been worried about estate taxes for years, but kept putting off dealing with it. Now that my plan is in place, I sleep better knowing my family won’t face a huge tax bill.”
That peace of mind is what drives our practice.
Common Estate Planning Mistakes That Increase Estate Tax
People often make predictable mistakes that unnecessarily increase Illinois estate tax liability.
Frequent mistakes include:
- Doing nothing – Not planning at all, assuming your estate isn’t large enough
- Not using both spouses’ exemptions – Without proper planning, couples can’t fully utilize both $4 million exemptions
- Owning life insurance in your name – Adds death benefits to your taxable estate
- Not making lifetime gifts – Missing opportunities to reduce your estate through strategic gifting
- Using outdated plans – Not updating documents as laws, assets, or family situations change
Working with experienced attorneys who understand Illinois estate tax exemption rules helps you avoid these costly errors.
Estate Planning Costs and Free Consultation
Estate planning costs vary based on complexity and the services you need. During a free consultation, you can discuss your situation and get clear cost information.
Common fee arrangements:
- Flat fee pricing – Many estate planning lawyers offer flat fee arrangements for standard estate planning documents and tax planning strategies.
- Hourly rate – Some situations involving complex business assets or intricate tax planning may be billed hourly.
Costs depend on several factors, including your asset levels, family situation complexity, and which estate planning documents and strategies you need.
Investing in proper estate planning now can save your family hundreds of thousands in unnecessary estate taxes. The cost of creating a solid estate plan is minimal compared to the Illinois estate tax your family would otherwise pay.
Planning for Major Life Events
Certain moments create natural opportunities to create or update your estate plan.
Consider estate planning after these major life 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 home value or investments
- Reaching the $3-4 million asset threshold
- Retirement or major career changes
Even without a trigger event, conducting periodic reviews every 3-5 years ensures your plan remains current with tax laws and your wishes.
Working With Financial Professionals
Estate planning works best when coordinated with your overall financial plan.
Your planning team might include:
- Financial advisor – Investment strategy and retirement planning
- Financial planner – Comprehensive financial affairs, including insurance and long-term goals
- Accountant – Tax guidance for lifetime decisions affecting your estate
- Insurance specialist – Proper life insurance structuring
Experienced estate planning attorneys and other professionals coordinate to create strategies that minimize Illinois estate tax while achieving your goals.
Taking the Next Step
You’ve worked hard to build financial security for your family. Losing hundreds of thousands to the Illinois estate tax because you didn’t create a plan feels wrong.
But estate planning stays on the to-do list because finding time feels impossible when you’re juggling everything else in life.
Here’s what happens when you take action:
- Schedule a free consultation to discuss your assets, family situation, and legal needs without obligation.
- We explain your options for minimizing Illinois estate tax while protecting your loved ones.
- You decide how to move forward with complete information about the process and costs.
- We guide you through creating your estate plan efficiently and thoroughly.
- Your plan is complete, and you have peace of mind knowing you’ve protected your family’s wealth.
Most people feel genuine relief after completing their estate plan. That’s exactly what we want for you.
Frequently Asked Questions
- What is the Illinois estate tax exemption for 2025 and 2026?
- Illinois estate tax exemption is $4 million per person for both 2025 and 2026. Unlike the federal exemption, which increased to $13.99 million for 2025 and $15 million for 2026, Illinois has not raised its exemption and has no inflation adjustments planned.
- Can married couples combine their Illinois estate tax exemptions?
- No. Illinois does not offer portability like federal estate tax law. Each person has a $4 million exemption, but you cannot automatically transfer the unused exemption to your surviving spouse. Proper estate planning with trusts can help couples protect up to $8 million, but it requires advance planning with an experienced estate planning attorney.
- How much will my estate owe in Illinois estate taxes?
- Illinois estate tax uses progressive rates. If your estate is $8 million, you’d owe approximately $680,000 in Illinois estate tax. The effective marginal tax rate ranges from 8% to 29%. An estate planning attorney can help you calculate potential tax liability and implement strategies to reduce it.
- Does Illinois have a gift tax?
- No. Illinois does not impose a state gift tax. This makes lifetime gifting an effective strategy for reducing your taxable estate. However, federal taxable gifts still affect your Illinois estate tax calculation, and federal gift tax rules apply to large gifts.
- What assets count toward the $4 million Illinois estate tax exemption?
- Your estate includes real estate, retirement accounts (401ks, IRAs), life insurance death benefits you own, business interests, investment accounts, bank accounts, and personal property. Everything you own at death counts toward the threshold. Many Evanston families reach $4 million through home equity, retirement savings, and life insurance alone.
- Can I avoid the Illinois estate tax by moving to another state?
- Changing your legal residence to a state without an estate tax can eliminate the Illinois estate tax on some assets. However, Illinois real estate remains subject to the Illinois estate tax regardless of where you live. Moving should be part of a comprehensive strategy, not a quick fix.
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 Illinois estate tax exemption 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.
