Here’s the short version: the federal estate tax exemption jumped to $15 million per person in 2026, so
most families never come close to owing federal estate tax. Illinois is a different story. Illinois taxes estates
starting at $4 million, a threshold that hasn’t moved in over a decade, which means a lot of Skokie and
Cook County families who feel comfortably below the federal radar are still squarely in Illinois territory.
We sit down with a lot of clients who are surprised by this gap. They’ve read that the federal exemption is
enormous now, so they assume estate planning is something for the ultra-wealthy. Then we walk through
the numbers and it turns out their house, retirement accounts, life insurance, and a small business add up
to $4.2 million, and Illinois wants a check.
The Federal Side: Bigger Exemption, Less Urgency, But Still Worth
Planning Around
For 2026, the federal estate tax exemption is $15 million per individual, and $30 million for a married
couple who plan properly, since the exemption is portable between spouses at the federal level. The annual
gift tax exclusion is $19,000 per recipient in 2026, meaning you can give any number of people up to that
amount each year without touching your lifetime exemption or filing a gift tax return. Married couples can
combine exclusions through gift splitting to give $38,000 per recipient. If you’re a U.S. citizen married to
a non-citizen spouse, the annual exclusion for gifts to that spouse rises to $194,000 in 2026, since the
unlimited marital deduction doesn’t apply the same way across citizenship lines.
The lifetime gift and estate tax exemption is unified at $15 million for 2026. Every taxable gift you make
during your life reduces how much of that exemption remains available at death. For the overwhelming
majority of families, this means federal estate tax simply isn’t the concern it used to be.
The Illinois Side: This Is Where The Real Planning Happens
Illinois imposes its own estate tax, separate from and in addition to the federal system, and the state’s
exemption has been fixed at $4 million since 2013. There was a legislative push in 2025 to raise it to $8
million, but that bill stalled in committee and the $4 million threshold remains in place for 2026.
A few things make the Illinois tax trickier than people expect. First, unused exemption generally isn’t
portable between spouses the way it is federally, which means each spouse’s estate is measured against the
$4 million threshold on its own, so planning that relies purely on “we’ll just use whatever’s left over” can
backfire without the right trust structure in place. Second, Illinois estate tax rates are graduated and can
reach into the mid-teens as a percentage on the taxable estate above the exemption, which adds up quickly
on real estate-heavy or business-heavy estates. Third, if your estate’s total value crosses the $4 million
threshold, you may need to file an Illinois estate tax return (Form 700) even in situations where no federal
return is required at all, since the two systems don’t share a filing trigger.
The good news, if there is one: Illinois does not have a separate state gift tax. Lifetime gifts are governed
by the federal gift tax rules only. That asymmetry (no state gift tax, but a state estate tax with a low
threshold) is exactly why gifting during life is such a common Illinois planning strategy. Assets given
away and out of your estate before death aren’t subject to the Illinois $4 million cap the way they would
be if they stayed in your estate.
What This Means For A Typical Cook County Estate
Add up a paid-off or mostly paid-off home in Skokie, Evanston, or nearby, a couple of retirement
accounts, some brokerage holdings, and a life insurance policy, and $4 million isn’t the stretch it sounds
like on paper. Life insurance in particular catches people off guard, because the death benefit is included
in your taxable estate for Illinois purposes if you own the policy yourself, even though the payout itself
isn’t income-taxable to your beneficiaries.
This is why estate planning conversations for our Illinois clients tend to focus less on “will the IRS come
after my estate” and more on structuring around the state threshold: irrevocable life insurance trusts to pull
policy proceeds out of the taxable estate, lifetime gifting programs that use the annual exclusion year after
year, and marital trust structures that make sure both spouses’ exemptions actually get used rather than
wasted.
Working With Your Attorney And Accountant Together
Estate tax planning sits at the intersection of legal documents and tax numbers, which is why it works best
when your estate planning attorney and your accountant are talking to each other rather than working in
separate silos. The attorney drafts the trusts and handles the legal structure; the accountant models the
actual tax exposure under both federal and Illinois law, tracks basis, and prepares the returns when the
time comes. We regularly work alongside estate attorneys for exactly this reason, since a beautifully
drafted trust that ignores the Illinois $4 million cliff isn’t actually solving the problem.
Frequently Asked Questions
Does Illinois have a gift tax? – No. Illinois does not impose a state-level gift tax. Only federal gift tax rules
apply to lifetime gifts, with a $19,000 per-recipient annual exclusion in 2026.
What is the Illinois estate tax exemption for 2026? – $4 million per estate. This amount has been
unchanged since 2013 and is separate from the much larger federal exemption of $15 million.
Do I need to file an Illinois estate tax return if my estate is under the federal exemption? – Possibly
yes. Illinois has its own filing trigger tied to the $4 million state threshold, so an estate can owe Illinois tax
and require an Illinois Form 700 filing even when no federal estate tax return is due.
Is life insurance included in my taxable estate in Illinois? – Generally yes, if you personally own the
policy. Moving ownership into an irrevocable life insurance trust is a common way to remove the death
benefit from your taxable estate.
Sources
Internal Revenue Service, 2026 inflation-adjusted amounts for estate and gift tax provisions
SmartAsset, “Illinois Estate Tax: Everything You Need to Know,” smartasset.com/estate-planning/illinois-estate-tax
Illinois General Assembly, HB2601 (proposed exemption increase, stalled in committee)
Morgan Lewis, “IRS Announces Increased Gift and Estate Tax Exemption Amounts for 2026”
This article is for general informational purposes and does not constitute legal or tax advice. Estate and gift tax law is fact-specific and
subject to change. Contact Wright & Associates and your estate planning attorney before making decisions based on this information.