Estate Planning Guide · Updated October 2026
Illinois Estate Tax: How It Works and How to Prepare for It
Illinois has its own estate tax, separate from the federal one. According to the Illinois Attorney General, a return is required when an estate's gross value, including adjusted taxable gifts, is more than $4 million. This guide explains how the tax works and shows how it applies to example estates. It also covers nonresidents who own Illinois property and how families and their advisors may use life insurance to plan for the bill.
The Short Answer
What Is the Illinois Estate Tax?
The Illinois estate tax is a state tax on the transfer of property at death. It is separate from the federal estate tax. For 2026, the Illinois exclusion amount is $4 million. The executor files Form 700 with the Illinois Attorney General. The return and any tax are generally due nine months after the date of death, and extensions may be requested. The tax is paid to the Illinois State Treasurer. (Illinois AG Fact Sheet, as of September 29, 2026)
Illinois applies its own threshold, even though federal law allows a much larger exemption. As a result, an estate may owe Illinois estate tax without owing any federal estate tax. Illinois does not impose a separate inheritance tax on beneficiaries (Illinois AG Estate Taxes).
Illinois Estate Tax at a Glance
- Threshold: $4 million gross estate, including adjusted taxable gifts
- Return: Form 700, required whether or not a federal Form 706 is required
- Filed with: Illinois Attorney General
- Paid to: Illinois State Treasurer
- Due: Generally nine months after death; extensions may be requested with Form 700-EXT or in writing
- Who it reaches: Illinois residents, plus nonresidents who own Illinois real estate or tangible personal property
Key 2026 Figures
Illinois vs. Federal Estate Tax Thresholds
$4M
Illinois exclusion amount (a threshold, not a credit)
$15M
Federal basic exclusion amount for 2026, indexed for inflation in later years
9 Mo.
When the return and tax are generally due after death; extensions may be requested
$0
Portable Illinois exclusion between spouses
Sources: Illinois Attorney General; IRS Rev. Proc. 2025-32 (IRB 2025-45). As of September 29, 2026.
How the Calculation Works
The Illinois Estate Tax "Cliff," Explained Accurately
People often describe the Illinois estate tax as having a "cliff." The Attorney General describes the $4 million exclusion as a taxable threshold, not a credit. That distinction matters. Under a credit system, the first $4 million would be sheltered no matter what, and tax would apply only to the excess. Under the Illinois threshold approach, crossing $4 million can produce a tax that is far larger than a simple percentage of the amount over the line.
The calculation is also interrelated. The Illinois tax is itself deductible when the taxable estate is determined, so the tax and the taxable estate depend on each other. For this reason, the Attorney General provides an online calculator, and practitioners generally rely on it rather than a single rate table.
What This Means in Practice
- 1Whether a return is required depends on the gross estate plus adjusted taxable gifts, not just the assets on hand at death.
- 2The tax is computed on the taxable estate, after allowable deductions such as the marital deduction, charitable gifts, debts and administration expenses.
- 3Dollars just above the threshold can face an effective marginal cost much higher than the stated rates suggest. Estates near $4 million may therefore benefit from careful review.
- 4Life insurance death benefits, retirement accounts and real estate all count toward the gross estate when the decedent owned or controlled them.
Example Estates
How the Illinois Estate Tax Applies at Different Estate Sizes
The examples below assume an unmarried Illinois resident who dies in 2026 with no prior taxable gifts and no charitable or marital deductions. They show how the filing requirement and planning considerations change as an estate grows. The actual tax amount depends on the interrelated calculation. For any specific estate, run the figures through the Illinois Attorney General's estate tax calculator or request a professional analysis.
None of these examples reach the federal basic exclusion amount. That amount is $15 million for 2026 and is indexed for inflation in later years, so the exposure shown here is generally Illinois-only.
| Gross Estate | Illinois Form 700 Required? | Illinois Estate Tax | What Could Change the Outcome | Planning Considerations |
|---|---|---|---|---|
| $3.9 million | Generally no | None expected | Asset growth, adjusted taxable gifts or personally owned life insurance could push the gross estate past $4 million. | Review the estate's value periodically and confirm how life insurance policies are owned. |
| $4.1 million | Yes | Tax generally due; may be large relative to the $100,000 excess | Charitable bequests, deductible debts and administration expenses can lower the taxable estate. | This is the "cliff" zone. A review with the estate planning attorney and CPA may be worthwhile. |
| $6 million | Yes | Tax generally due | Allowable deductions, prior gifts and how assets are valued can all affect the result. | Liquidity may be a concern if the estate is mostly real estate or a closely held business. |
| $10 million | Yes | Tax generally due; may be a meaningful share of the estate | Charitable planning, lifetime transfers and ILIT ownership of life insurance may affect the result. For a married person, so may the marital deduction and a state-only QTIP election. | The tax is generally due nine months after death. Families commonly evaluate liquidity sources, including life insurance. |
Federal basic exclusion amount per IRS Rev. Proc. 2025-32. Illinois filing rule per the Illinois AG Fact Sheet. As of September 29, 2026. Results vary with deductions, prior gifts and asset values.
Married Couples
No Portability and the State-Only QTIP Election
Federal law allows a surviving spouse to use a deceased spouse's unused exemption. This is called portability. Illinois does not offer portability for its $4 million exclusion. When everything passes outright to the surviving spouse, the marital deduction may defer Illinois tax at the first death. However, the first spouse's Illinois exclusion can go unused, and the full combined estate may be exposed at the second death.
A common approach is a credit shelter (bypass) trust at the first death. If that trust is funded to the full federal exemption, more than $4 million could be exposed to Illinois tax. The Illinois Estate and Generation-Skipping Transfer Tax Act permits a separate Illinois QTIP election. This election may allow the amount above $4 million to qualify for the Illinois marital deduction, deferring the state tax to the second death. The trade-offs include added drafting complexity, possible inclusion in the survivor's estate, and the need for timely elections. Your estate planning attorney should confirm how the election applies to your documents.
Nonresidents and Metro East Owners
Missouri Residents With Illinois Property
Illinois estate tax can reach nonresidents who own Illinois-situs real estate or tangible personal property. This is relevant to St. Louis-area families who own a farm, rental property, vacation home or business real estate across the river in the Metro East. According to the Illinois CPA Society, the tax for nonresidents is generally apportioned based on the value of Illinois property relative to the total estate.
In practice, a Missouri resident with a large overall estate and a modest Illinois parcel may still have an Illinois filing obligation. How the property is titled, for example individually or through an entity or trust, can affect the analysis. Families in this position may want their CPA and attorney to review ownership before changing it, because retitling can carry income tax, lending and liability consequences.
Life Insurance and the Illinois Estate Tax
How Life Insurance Is Used to Plan for Illinois Estate Tax
Life insurance does not reduce the Illinois estate tax itself. It is commonly used to provide cash when the tax comes due, so heirs may have options other than selling a business, farmland or real estate under deadline pressure. Each approach below carries costs and limitations that should be weighed against alternatives.
Liquidity for Illiquid Estates
A death benefit may give the estate or heirs cash around the time the Illinois tax is generally due, nine months after death. Limitations: premiums are an ongoing cost, coverage depends on underwriting and insurability, and policy performance assumptions may not hold.
ILIT Ownership
An irrevocable life insurance trust that owns the policy is designed to keep the death benefit out of the insured's taxable estate. Limitations: the trust is generally irrevocable, adds legal and administrative cost, and requires ongoing gifting and trustee formalities.
The 3-Year Rule
Under federal law, if an existing policy is transferred to a trust and the insured dies within three years, the proceeds are generally pulled back into the estate. Having the trust apply for a new policy is one way planners approach this. Limitations: new coverage requires fresh underwriting and may cost more at older ages.
Survivorship Coverage
The marital deduction often defers tax to the second death, so some couples consider second-to-die policies, which pay when the surviving spouse dies. Limitations: nothing is paid at the first death, and a divorce or change in plans may leave the policy poorly aligned.
Sizing for Combined Exposure
Coverage amounts are often modeled against projected Illinois tax, any federal exposure above the exemption, and settlement costs. Limitations: projections depend on asset growth and future law, both of which can change. Periodic policy reviews may help identify drift.
Permanent vs. Converted Coverage
Estate tax needs are typically long-term, so planners often look at permanent life insurance in estate planning or at a term conversion. Limitations: permanent coverage generally costs more than term, and conversion options vary by carrier and deadline.
Comparison
Estate-Owned vs. ILIT-Owned Life Insurance
| Factor | Owned by Insured (or Estate) | Owned by an ILIT |
|---|---|---|
| Death benefit in taxable estate | Generally yes; may increase Illinois and federal exposure | Generally no, if properly structured and the 3-year rule is satisfied |
| Control and flexibility | Insured keeps full control | Trustee controls; terms generally cannot be changed easily |
| Setup and ongoing cost | Lower administrative cost | Legal drafting, trustee duties, gift notices |
| Access to cash for taxes | Proceeds available to the estate | Trust may lend to or buy assets from the estate, if permitted by the trust terms |
| Crossing the $4M threshold | Proceeds may push the estate over the line | Designed to keep proceeds outside the calculation |
BUI Resources
How BUI's Estate Evaluation and Estate Tax Analysis Work
BUI offers two processes through its evaluations program that apply directly to Illinois estate tax planning. The Estate Tax Analysis is a detailed calculation of potential federal and/or state estate taxes by a qualified estate planning expert. The Estate Evaluation is a broader review of the current estate plan, the client's wishes and objectives, and possible planning alternatives.
Both are educational analyses designed to support conversations with the client's existing advisors. They are not a substitute for legal or tax advice. Clients should always consult and coordinate with their own professional tax and legal advisors, including their CPA and estate planning attorney, before acting on any analysis or changing their estate plan. Any insurance considered as a result is subject to underwriting, cost and suitability review.
Communicate Value
BUI provides client explanation documents that help advisors introduce the process.
Gather Information
The advisor and client complete a confidential information gathering document covering assets, titling, existing documents and goals.
Expert Analysis
A qualified estate planning expert models potential federal and state exposure and reviews planning alternatives.
Receive a Polished Report
BUI delivers a report summarizing the client's options, and can help with the presentation.
Coordinate With the Client's Professional Advisors
The client reviews the report with their CPA, estate planning attorney and financial advisor. Those advisors decide what, if anything, fits the client's situation before any changes are made.
For CPAs, Attorneys and Financial Advisors
Partner With BUI on Illinois Estate Tax Cases
Professional advisors often spot Illinois estate tax exposure first. Examples include a client near the $4 million threshold, a Missouri client with Metro East property, or a couple whose documents predate the current federal exemption. BUI works alongside the client's existing team, providing the analysis, the life insurance marketplace research and the case design support, while the attorney and CPA stay in their advisory roles.
Learn more about how BUI supports RIAs, broker-dealers and advisors using the turn-key evaluation system.
Cases Worth a Second Look
- Illinois residents with gross estates between roughly $3 million and the federal basic exclusion amount ($15 million for 2026, indexed for inflation), where Illinois tax may apply without federal tax
- Nonresidents holding Illinois real estate or tangible property
- Estates concentrated in a closely held business or farmland
- Personally owned life insurance that may push an estate over $4 million
- Existing ILIT policies that have not been reviewed recently
FAQ
Illinois Estate Tax Questions
How Can You Reduce the Illinois Estate Tax?
Several strategies may potentially reduce Illinois estate tax. For married couples, these include credit shelter trusts with a state-only QTIP election. Others are charitable bequests, lifetime gifting and moving life insurance ownership to an ILIT. Illinois counts adjusted taxable gifts toward its filing threshold, so gifting results vary. Each strategy involves costs, loss of control or other trade-offs, and should be coordinated with an estate planning attorney and CPA.
What Are the Changes to the Illinois Estate Tax in 2026?
As of September 29, 2026, the Illinois exclusion remains $4 million, according to the Attorney General. Bills proposing a revised calculation, including SB2038 and HB2368, were referred to committee in 2025 and have not been enacted. At the federal level, the basic exclusion amount is $15 million for 2026 and is indexed for inflation in later years, per IRS Rev. Proc. 2025-32. That widens the gap between the Illinois and federal thresholds.
Do Beneficiaries Pay Taxes on Estate Distributions in Illinois?
Generally, beneficiaries do not pay Illinois estate tax. The tax is paid by the estate before assets are distributed, and Illinois does not impose an inheritance tax on beneficiaries. Some inherited assets, such as traditional IRAs, may still create income tax for the beneficiary when funds are withdrawn.
What Other States Have an Estate or Inheritance Tax?
According to the Tax Foundation's Facts & Figures 2026, with data as of January 1, 2026:
- Estate tax (12 states): Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington. The District of Columbia also has an estate tax.
- Inheritance tax (5 states): Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania.
Maryland is the only state on both lists, and Missouri is on neither. Thresholds and rates vary by state and can change, so confirm current rules with a tax professional in each relevant state.
Does Life Insurance Count Toward the Illinois Estate Tax?
Life insurance owned by the insured is generally included in the gross estate and may push an estate past $4 million. Policies owned by a properly structured irrevocable life insurance trust are generally excluded. Existing policies transferred to a trust may still be included if the insured dies within three years.
Sources
- Illinois Attorney General, Estate Tax Instruction Fact Sheet, accessed September 29, 2026
- Illinois Attorney General, Estate Taxes, accessed September 29, 2026
- Internal Revenue Service, Rev. Proc. 2025-32, IRB 2025-45 (2026 basic exclusion amount and inflation adjustment for later years), accessed September 29, 2026
- Illinois General Assembly, SB2038 Bill Status and HB2368 Bill Status, accessed September 29, 2026
- Illinois General Assembly, Illinois Estate and Generation-Skipping Transfer Tax Act
- Illinois CPA Society, Illinois Estate Tax Applies to Residents and Nonresidents With Illinois Property
- Tax Foundation, Facts & Figures 2026: How Does Your State Compare? (estate and inheritance tax tables, data as of January 1, 2026), accessed October 6, 2026
- Tax Foundation, State Estate and Inheritance Taxes Map, accessed October 6, 2026
Next Step
Estimate Your Illinois Estate Tax Exposure
A BUI Estate Tax Analysis is designed to show potential Illinois and federal exposure and how liquidity planning, including life insurance, may fit alongside the work of your attorney and CPA. Contact BUI in St. Louis, MO, at 314-392-2841.
Schedule a Consultation