While the government discusses the bill that will raise the estate tax exemption to $8 million, the Illinois estate tax, with rates up to 16 percent, still impacts estates that exceed the threshold of $4 million as of 2025. Effective estate planning can potentially lower the estate's taxable burden and maximize the assets passed on to intended beneficiaries. It’s also important to consider the implications of federal estate taxes alongside the state tax.
At Lewis.cpa, our experienced team can provide tailored advice and assistance with estate and trust tax preparation services to help you achieve your estate planning goals. Contact us if you want to know how to avoid the Illinois estate tax in your case.
What Is the Illinois Estate Tax Rate?
As of 2025, the Illinois estate tax applies to estates with values exceeding the $4 million exemption. The tax is assessed on a graduated scale, with rates escalating to 16 percent. The estate’s value over the exemption amount determines the precise estate tax liability using the most current tax rate table.
Understanding these rates is essential for strategic estate planning, which can impact the structure of an estate and the amount of tax levied. For meticulous planning and execution, we recommend seeking the expertise of a tax professional or estate planning specialist who is up-to-date with the latest tax laws and rates.
*The taxable estate is the amount above the $4 million exemption.
**The rate threshold indicates the point at which various marginal estate tax rates take effect.
Please note that the marginal rates are applied incrementally, not to the entire estate’s value over the exemption amount. For instance, an estate valued at $5 million would not incur a flat 16 percent on the taxable amount. Instead, it would be taxed at varying rates according to each estate portion within the specified tax brackets.
Who Does the Illinois Estate Tax Apply To?
The Illinois estate tax is imposed on estates that exceed a certain value threshold, with specific rules applying to both residents of the state and non-residents who own property within Illinois.
Applicability to Illinois Residents
For Illinois residents, the estate tax applies to estates with a value that surpasses the current exemption of $4 million. The term 'resident' refers to an individual whose permanent legal residence, or domicile, was in Illinois at the time of their death. It is not sufficient to merely reside in Illinois — the individual must also have the intent to maintain Illinois as their permanent home.
Applicability to Non-Residents
Non-residents who don’t have Illinois as their legal domicile but own tangible personal property or real estate in Illinois are subject to Illinois estate tax if their property within the state exceeds the $4 million exemption limit. For non-residents, only the value of their Illinois assets is considered for the Illinois estate tax, not their entire estate.
It's important to note that the Illinois Department of Revenue can assess the estate tax on non-residents even if the assets are held in various forms, such as trusts or partnerships.
What Is Included in an Illinois Estate?
Remember, the estate tax only applies to estates worth over $4 million. This also applies to non-residents who own physical or real property in Illinois valued at over $4 million. An estate would be taxed at 28.5 percent, while estates valued over $11.18 million are taxed at 40 percent.
Components of an Illinois estate include:
- Bank accounts
- Real estate
- Life insurance proceeds
- Business interests
- Personal property, including vehicles, jewelry, artwork, and antiques
Thankfully, there are strategies to mitigate or even avoid the Illinois estate tax burden. They include gifting within annual exclusion limits, utilizing life insurance as part of estate planning, and setting up advanced trust arrangements.
The estate’s executor is charged with identifying and valuing all estate assets. For estates exceeding the $4 million threshold, the executor must file an Illinois estate tax return within nine months following the decedent's death, which is obligatory irrespective of whether a federal estate tax return is due.
Key Points to Remember
- Federal Estate Tax: For 2025, the federal estate tax exemption is $13.99 million. Engaging with a tax professional is essential to navigate the relationship between federal and Illinois state estate taxes.
- Illinois Estate Components: Your estate for tax purposes includes liquid assets, property, insurance payouts, business equity, and tangible personal assets. These elements can significantly influence your estate's tax liability.
How to Avoid the Illinois Estate Tax
There are several strategies to reduce estate tax liability:
Annual Gifting
- Individuals can gift up to $19,000 per year to each beneficiary without triggering federal gift taxes (married couples can gift $38,000).
- Over time, annual gifting reduces an estate’s taxable value.
Estate Planning Strategies
- Establishing a properly structured living trust can protect assets and help transfer them outside one's taxable estate.
- Life insurance policies with beneficiaries bypassing the estate can minimize estate taxes.
Tax Exemptions
- Assets left to a surviving spouse/civil union partner or charity are exempt.
Other Approaches
- Spending assets while alive or moving to another state to avoid the Illinois estate tax.
- Selling Illinois estate holdings removes them from tax liability.
How Does the Illinois Estate Tax Differ from the Federal Estate Tax?
The Illinois estate tax and the federal estate tax each have distinct thresholds and rates as of 2025. Illinois imposes an estate tax on estates exceeding the $4 million threshold, with progressive rates up to 16 percent. Notably, Illinois doesn’t offer portability, which means any unused portion of the exemption cannot be transferred to a surviving spouse.
In contrast, the federal government sets the estate tax exemption at $13.99 million for individuals, with an estate tax rate of 40 percent applied to estate values exceeding this amount. The federal tax system includes a portability feature, meaning a surviving spouse can utilize any unused portion of their deceased spouse's exemption.
This difference between state and federal estate taxation means that for individuals with substantial assets, estate planning must account for both sets of rules to optimize tax outcomes.
Minimize Illinois Estate Tax with Lewis.cpa!
With the Illinois estate tax exemption now at $4 million per individual for 2025, proper planning is essential to minimize taxes and maximize wealth transfer for high-net-worth residents.
We know this topic can be overwhelming, especially if you aren’t familiar with estate taxes. Whether you struggle with the Illinois estate tax exemption, the federal estate tax exemption, or both, Lewis.cpa has extensive experience with estate tax preparation and planning strategies to navigate exemptions, exclusions, deductions, and state/federal requirements. We’ll take care of everything so you don’t have to. Contact us, and we will help guide you through future financial planning services and estate tax returns!
