Estate planning is something most people put off until it feels urgent. But if you have a home in Naperville, a retirement account, a life insurance policy, or a family business, the difference between acting now and acting later can cost your heirs hundreds of thousands of dollars.
Our team at Lewis.cpa has outlined what each tax actually means, how Illinois adds another layer most residents don't see coming, and the financial planning strategies worth discussing with your CPA.
What Is the Estate Tax?
The estate tax is a federal tax on the total value of a person's assets at death, paid by the estate before anything reaches your heirs. Assets are valued at fair market value on the date of death — real estate, investments, retirement accounts, business interests, and life insurance proceeds all count.
Key figures for 2026:
- Federal exemption: $15,000,000 per person ($30,000,000 for married couples)  —  set by the One Big Beautiful Bill Act, signed July 4, 2025
- Tax rate: 40% on the amount above the exemption
- Filing: IRS Form 706
Example: Someone dies in 2026 with an estate worth $16 million. The taxable portion is $1 million ($16M – $15M exemption). Federal estate tax owed: $400,000.
Most estates won't hit the federal threshold. But Illinois residents face a separate, much lower bar.
The Illinois Estate Tax: A $4 Million Threshold
This is where Illinois residents often get caught off guard. Illinois has its own estate tax, Â administered by the Illinois Attorney General's Office, with an exemption of just $4 million and rates up to 16%. The federal exemption is nearly four times higher.
Illinois is also a "cliff tax" state. Cross the $4 million line by even a small amount, and the tax applies to the entire excess, not just the overage. Put in other terms, an estate worth $4.1 million doesn't simply owe tax on $100,000. The structure means the effective marginal rate on those extra dollars can approach 100%, which makes precision planning especially important for estates in that range.
One more critical difference from federal law: Illinois does not allow portability between spouses. Under federal rules, a surviving spouse can inherit any unused portion of their deceased spouse's exemption. Illinois doesn’t offer this benefit.
Without planning, a married couple with $8 million in assets could waste the first spouse's entire $4 million Illinois exemption, leaving the full $8 million subject to state estate tax when the surviving spouse dies. A credit shelter trust is one of the most effective tools to address this gap and effectively double the Illinois protection to $8 million per couple.
There is no inheritance tax in Illinois, and beneficiaries don't pay a tax on what they receive. The estate may owe both federal and state estate taxes before distribution, but beneficiaries inheriting the assets don't get a separate bill. (Several other states do have inheritance taxes — Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania — but Illinois is not among them.)
If you're an Illinois resident with a home, retirement savings, and life insurance, reaching $4 million is more realistic than it sounds. That's why estate planning here means accounting for both the state and federal thresholds.
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Your Estate Plan Needs to Account for Illinois, Not Just the IRS
Lewis.cpa works with families and business owners to reduce gift and estate tax exposure through planning that fits your specific situation. Reach out to get started.
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What Is the Gift Tax?
The gift tax is a federal tax on money or property transfers made during your lifetime. The person giving the gift pays the tax, not the recipient. Illinois has no separate gift tax. Any gift of cash, real estate, securities, or other valuable assets can potentially trigger reporting requirements, though most people never actually owe tax.
Key figures for 2026:
- Annual exclusion: $19,000 per recipient — married couples can combine for $38,000 per recipient.
- Lifetime exemption: $15,000,000 — shared with the federal estate tax exemption
- Tax rate: Up to 40% on gifts exceeding the lifetime limit.
- Reporting: IRS Form 709 is required when gifts to a single recipient exceed $19,000 in a year.
The annual exclusion resets each year. You can give $19,000 to as many people as you want, such as children, grandchildren, or friends, without filing a gift tax return or reducing your lifetime exemption. If you give more than $19,000 to one person in a year, the excess counts against your $15 million lifetime exemption. You won't owe tax until cumulative taxable gifts exceed that amount.
Example: In 2026, you give your child $119,000. The first $19,000 is excluded. The remaining $100,000 reduces your lifetime exemption from $15 million to $14.9 million. No tax is due yet  —  but the usage is tracked and reduces what's available at death.
When Does Gifting Make More Sense Than Leaving Assets in Your Estate?
Gifting and inheritance each have situations where they're the stronger choice. The right approach usually depends on asset type, how much has appreciated, and your estate's size relative to the Illinois threshold.
Here's when gifting tends to work better:
- Reducing the Illinois estate tax exposure. Every dollar given during your lifetime reduces the value of your taxable estate at death. For Illinois residents with estates approaching $4 million, systematic annual gifting can keep the estate below the state threshold entirely — a meaningful difference.
- Transferring appreciated assets before further growth. If you hold stock or real estate that has grown significantly, gifting it now removes future appreciation from your taxable estate. The recipient takes your original cost basis (a "carryover basis"), so any gains after the gift are taxed at their rate. However, that future appreciation won't compound your estate tax exposure.
- Providing resources when they're most useful. Systematic gifting is $19,000 per year, per recipient. It lets you transfer wealth over time while watching it do good. A grandchild launching a business or a child buying a home can benefit now, not in 20 years.
When Does Inheritance Make More Sense?
In some situations, holding assets until death is the better tax move, and it usually comes down to one concept.
Step-up in basis. When heirs inherit appreciated assets, they receive a step-up in cost basis to the fair market value at the date of death. If they sell shortly after, they may owe little or no capital gains tax. When those same assets are gifted during your lifetime, the recipient takes your original cost basis, and a future sale could trigger a significant capital gains bill.
This distinction is especially important for long-held real estate, family business interests, and appreciated stock portfolios. In some cases, holding those assets until death may be more tax-efficient than gifting them, even when factoring in potential estate taxes.
Maintaining control. Some people aren't ready to transfer assets outright. Wills and trusts let you set conditions, timelines, and beneficiary designations, and adjust them as circumstances change.
Planning Strategies Worth Discussing with Your CPA
Every estate is different, but here are the approaches we see come up consistently for Illinois families and business owners.
- Annual exclusion gifting. A consistent approach, $19,000 per recipient per year, adds up faster than you’d expect. A couple with three adult children and six grandchildren can transfer $342,000 annually without any gift tax return or impact on the lifetime exemption.
- Education and medical exclusions. Payments made directly to a qualified educational institution or medical provider are excluded from gift tax entirely, with no dollar limit and no impact on the $19,000 annual exclusion. These often go underused. See IRS Publication 950 for details.
- Irrevocable trusts. Trusts can remove assets from your taxable estate while preserving some degree of oversight over how they're used. Irrevocable life insurance trusts (ILITs) and spousal lifetime access trusts (SLATs) are commonly used by Illinois families with estates near or above the $4 million state threshold.
- Charitable giving. Direct gifts to qualified 501(c)(3) organizations are not subject to gift tax and reduce your taxable estate. Charitable remainder trusts can provide income during your lifetime while removing assets at death.
Work With Lewis.cpa on Your Estate Plan
Illinois estate planning involves federal and state rules that interact in complex ways — and the stakes are high, as missing a threshold or misunderstanding a rule can cost your family significantly.
Our team at Lewis.cpa helps individuals, families, and closely held business owners structure their estates to minimize taxes and protect what they've built. Reach out to schedule a consultation.
