Will your family owe estate tax? It may be more likely than you'd expect. Illinois has its own estate tax, separate from the federal one, and it begins at just $4 million per person. If you add up the value of a home, retirement accounts, and life insurance, many families who wouldn't normally label themselves as wealthy are closer to this line than they realize.
The federal estate tax applies only to estates over $15 million per person in 2026, so most families will never owe it. That's why it's possible to owe Illinois estate tax even when no federal estate tax is due.
Your estate includes far more than your bank accounts. Your home, retirement accounts, investments, and business interests all count. So does life insurance on your own life if you own the policy, because the amount it pays out when you pass away, called the death benefit, is added to your estate. The Illinois exemption also hasn't changed in more than a decade and isn't adjusted for inflation, so as your home and savings grow over the years, you may move closer to the threshold.
Once an estate exceeds $4 million, even by a single dollar, Illinois calculates its tax on the entire estate rather than only the amount over the threshold. That's why it's often called a cliff. Rates range from 0.8% to 16%, so an estate just over the line can owe a significant amount.
If an estate is over $4 million, an Illinois estate tax return is generally due to the Illinois Attorney General within nine months of the date of death.
An exemption is the amount a person can leave to their children or other loved ones at death without owing estate tax, whether those assets pass through a will, a trust, or a beneficiary designation. Under federal law, if the first spouse to pass away doesn't use all of their exemption, the surviving spouse can add what's left to their own. Illinois doesn't allow this. Each spouse has a separate $4 million exemption, and because whatever you leave to your spouse isn't taxed when the first spouse passes away, leaving everything directly to the surviving spouse means the first spouse's exemption is never put to use. It's simply lost. With careful planning, often through what's called a credit shelter trust, a married couple can use both exemptions and protect up to $8 million from Illinois estate tax.
Depending on your family and your goals, there are other ways to reduce what your estate may owe. Because Illinois has no gift tax, giving assets during your lifetime can gradually lower the value of your estate. Changing who owns a life insurance policy, sometimes by placing it in an irrevocable life insurance trust, can keep the death benefit out of your estate. And charitable gifts reduce your taxable estate while supporting causes you care about.
Inside your revocable living trust, we can create a separate sub-trust for each of your beneficiaries. In our firm, we call it a Personal Asset Trust. What your children inherit in their sub-trusts doesn't count toward their own estates for estate tax purposes, so if you've done a good job of avoiding estate taxes at your level, it makes sense to continue that on to the next generation. You can even direct that whatever remains in a child's trust pass to their own children.
Those same sub-trusts can also protect an inheritance if a child faces a divorce, a lawsuit, or a bankruptcy. We never know what life will bring for our beneficiaries, so the goal is a structure that lets their inheritance benefit them as much as possible.
Not all trusts are created equal. At Kiselstein Franckowiak Law Group, we've administered thousands of trusts, so when we draft yours, we know what works well and which provisions matter once a trust actually needs to be administered. It's a lot like airbags in a car. If they don't work, it's too late by the time you find out.
If your home, retirement savings, and life insurance could bring your estate near $4 million, we'd be glad to help you understand where you stand and what makes sense for your family.
This article is for informational purposes only and is not intended as legal advice. Please consult a qualified estate planning attorney regarding your specific situation.