There are two types of death taxes to consider: the federal estate tax and the Illinois state estate tax. Each has its own exemption threshold, and it is possible for an estate to owe Illinois estate tax even if it owes no federal estate tax.

Federal Estate Tax: The federal estate tax applies to estates with net assets exceeding the applicable exemption amount. Under the One Big Beautiful Bill Act, signed into law on July 4, 2025, the federal estate and gift tax exemption increased to $15 million per person (or $30 million for married couples with proper planning) beginning January 1, 2026. This exemption is permanent and will be indexed for inflation beginning in 2027. The top federal estate tax rate remains 40% on amounts above the exemption.

Illinois Estate Tax: Illinois imposes its own separate estate tax with a much lower exemption — currently $4 million per person as of 2025. Unlike the federal exemption, the Illinois estate tax exemption is not portable between spouses. This means that Illinois residents with estates between $4 million and $15 million may owe Illinois estate tax even though they owe no federal estate tax. Illinois estate tax planning is an important consideration for many families in DeKalb County and Northern Illinois.

Even if your estate is currently below the applicable thresholds, your assets may appreciate over time. You should regularly review your estate plan with an estate planning attorney to ensure it accounts for changes in tax law and shifts in your individual circumstances.

Yes. Illinois is one of a relatively small number of states that imposes its own estate tax, separate from the federal estate tax. The Illinois estate tax exemption is currently $4 million per person. Estates valued above $4 million may owe Illinois estate tax on the amount exceeding that threshold, even if no federal estate tax is owed.

There are several important differences between the Illinois and federal estate taxes:

• Lower exemption — The Illinois exemption of $4 million is significantly lower than the federal exemption of $15 million (2026), meaning many more Illinois estates are subject to state estate tax than federal estate tax.
• No portability — Unlike the federal estate tax, the Illinois estate tax exemption cannot be transferred (ported) to a surviving spouse. This makes proper trust planning especially important for married couples in Illinois.
• No gift tax — Illinois does not have a state gift tax, though lifetime taxable gifts are included in the decedent’s Illinois taxable estate for purposes of calculating the Illinois estate tax.

For Illinois residents, estate tax planning at the state level is often just as important — or more important — than federal estate tax planning. Our attorneys can help you develop strategies to minimize your Illinois estate tax exposure.

Your taxable estate comprises the total value of your assets — including your home, other real estate, business interests, your share of joint accounts, retirement accounts, and life insurance policies — minus liabilities and deductions such as funeral expenses paid out of the estate, debts owed at the time of death, bequests to charities, and the value of assets passed to your U.S. citizen spouse under the unlimited marital deduction.

The taxes imposed on the taxable portion of the estate are paid out of the estate itself before distribution to your beneficiaries. This is why estate tax planning is important — without proper planning, estate taxes can significantly reduce what your heirs actually receive.

The federal government allows every married individual to give an unlimited amount of assets — either by gift during life or by bequest at death — to his or her spouse without any federal gift or estate tax. This is called the unlimited marital deduction.

In effect, the unlimited marital deduction allows married couples to delay the payment of estate taxes at the passing of the first spouse. However, it does not eliminate estate taxes — it merely postpones them. At the death of the surviving spouse, all assets in the estate above the applicable federal exemption ($15 million per person in 2026) will be included in the survivor’s taxable estate and potentially subject to the 40% federal estate tax rate.

It is also important to note that the unlimited marital deduction is only available to surviving spouses who are United States citizens. Additionally, for Illinois estate tax purposes, assets passing to a surviving spouse under the marital deduction are not subject to Illinois estate tax at the first death — but Illinois estate tax may apply at the second death if the surviving spouse’s estate exceeds $4 million and proper planning has not been done.

A Credit Shelter Trust — also known as a Bypass Trust or A/B Trust — is used to eliminate or reduce estate taxes and is typically used by a married couple whose estate exceeds the amount exempt from estate tax. While the increased federal exemption means fewer couples need this strategy for federal purposes, it remains highly relevant for Illinois estate tax planning given the state’s $4 million exemption and lack of portability.

Because of the unlimited marital deduction, a married person may leave an unlimited amount of assets to his or her spouse free of estate taxes. However, for individuals with substantial assets, the marital deduction does not eliminate estate taxes — it simply delays them. When the second spouse dies with an estate worth more than the exemption amount, that estate may be subject to estate tax on the excess. Meanwhile, the first spouse’s estate tax exemption was unused and, in effect, wasted.

The purpose of a Credit Shelter Trust is to preserve both spouses’ exemptions. Upon the death of the first spouse, assets up to the first spouse’s exemption amount are placed into a separate, irrevocable trust. The surviving spouse can be the beneficiary of this trust — with the children as beneficiaries of the remaining interest — but the trust assets are not included in the surviving spouse’s taxable estate. This way, both spouses’ exemptions are utilized, which can result in significant estate tax savings, particularly for Illinois estate tax purposes.

Our homes are often our most valuable assets and one of the largest components of a taxable estate. A Qualified Personal Residence Trust, or QPRT (pronounced “cue-pert”), allows you to transfer your home or vacation home to your heirs at a significant gift tax discount, freeze its value for estate tax purposes, and continue to live in it during the trust term.

Here is how it works: You transfer the title to your house to the QPRT — usually for the benefit of your family members — while reserving the right to live in the house for a specified number of years. If you live to the end of the specified period, the house (and any appreciation in its value since the transfer) passes to your children or other beneficiaries free of any additional estate or gift taxes.

After the trust term ends, you may continue to live in the home, but you must pay fair market rent to your family or designated beneficiary in order to avoid having the residence included back in your estate. This rent payment actually provides an additional estate planning benefit — it further reduces the value of your taxable estate by transferring wealth to your beneficiaries in a tax-efficient way, though the rent income does have income tax consequences for your beneficiaries.

If you die before the end of the specified term, the full value of the house will be included in your estate for estate tax purposes — though in most cases you are no worse off than had you not established a QPRT. An added benefit of the QPRT is that it also serves as a creditor protection vehicle, since you no longer technically own the property once the trust is established.

There is a common misconception that life insurance proceeds are not subject to estate tax. While the proceeds are received by your beneficiaries free of income taxes, if you own the policy at the time of your death, the proceeds are counted as part of your taxable estate and can be subject to estate tax — potentially at the 40% federal rate or Illinois estate tax rate.

An Irrevocable Life Insurance Trust (ILIT) keeps the death benefits of your life insurance policy outside your taxable estate, so they are not subject to estate taxes. The ILIT — not you personally — owns the life insurance policy, so the proceeds are not included in your estate at death.

There are many options available when setting up an ILIT. For example, an ILIT can be structured to provide income to a surviving spouse with the remainder going to your children from a previous marriage. You can also structure distributions to provide a limited amount of insurance proceeds over time to a beneficiary who may not be financially responsible. For Illinois residents, an ILIT can be particularly valuable given that Illinois estate tax can apply to estates as low as $4 million.

A Family Limited Partnership (FLP) is a form of limited partnership among members of a family used to transfer wealth to the next generation in a tax-efficient manner while retaining control over the underlying assets. A limited partnership has both general partners — who manage and control the partnership — and limited partners, who are passive investors with no management rights.

Typically, the older generation forms the FLP by contributing assets (often a family business, investment portfolio, or real estate) to the partnership in exchange for a small general partnership interest and a large limited partnership interest. Over time, the limited partnership interests are transferred to children and grandchildren — through gifts or sale — while the older generation retains the general partnership interests and continues to control the partnership’s investments and distributions.

The FLP offers several estate planning benefits:

• Estate reduction — Transferring limited partnership interests to family members reduces the taxable estate of the older generation over time.
• Valuation discounts — Because limited partners have no control over investments or distributions, their interests may qualify for valuation discounts (lack of control and lack of marketability discounts) when valued for gift and estate tax purposes, reducing the taxable value of transferred interests.
• Creditor protection — A properly structured FLP can provide creditor protection characteristics, since general partners are not obligated to distribute partnership earnings.
• Retained control — The older generation retains control over the management and distribution of assets even after transferring economic interests to the next generation.

FLPs are complex planning vehicles that must be carefully structured and maintained to achieve their intended benefits. Our attorneys can advise on whether an FLP or similar structure makes sense for your family’s situation.