If you own property in Illinois, you’ve probably heard someone mention the estate tax. Maybe a neighbor sold their parent’s house and mentioned something about a huge tax bill. Or maybe you were at a local event and overheard farmers talking about having to sell land just to pay taxes.
Illinois has one of the lowest estate tax thresholds in the country. And if you own a home in Frankfort, farmland in the surrounding area, or investment property anywhere in the state, you could be facing a tax situation that catches your family off guard when you pass away.
At M.W. Brady Law, we’ve helped hundreds of families in Frankfort, Crete, Bourbonnais, and beyond navigate strategic estate planning with the Illinois estate tax in mind. Our team has put together this guide to help homeowners and landowners understand the Illinois estate tax.
What Is the Illinois Estate Tax?
The Illinois estate tax is a state-level tax on the transfer of property when someone passes away. It’s separate from the federal estate tax, which means your estate could owe taxes to both Illinois and the federal government depending on its value.
Illinois has a $4 million threshold. If your estate is worth more than $4 million when you pass away, the entire estate becomes subject to Illinois estate tax—not just the amount over $4 million. This is different from how federal estate taxes work, where only the amount above the exemption gets taxed.
The tax rates in Illinois can be up to 16% depending on the size of your estate. For context, if your estate is worth $5 million, you’re not just paying tax on that extra million—your heirs could be facing a tax bill of around $200,000 or more.
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How Illinois Is Different from Other States (and Why People Are Leaving)
Most states don’t have an estate tax at all. As of 2025, only 12 states and the District of Columbia impose one. Illinois is among the states with the lowest thresholds, making it particularly challenging for homeowners, landowners, and business owners.
By comparison, the federal estate tax exemption for 2025 is $13.99 million per person. That means most Americans won’t face federal estate tax—but plenty of Illinois residents will still get hit with the state tax because of that $4 million threshold.
This has real consequences; we’ve seen families forced to sell property they wanted to keep because they couldn’t afford the tax bill. We’ve watched people leave Illinois altogether to establish residency in states with no estate tax, like Florida or Texas.
Here’s what that looks like in practice. Say your home in Frankfort is worth $500,000, you own some farmland that’s appreciated over the years, and you have retirement accounts and life insurance—you can cross that $4 million mark faster than you think.
What Gets Counted in Your Estate?
Your taxable estate includes nearly everything you own at death:
- Your home and any other real estate (including rental properties or vacation homes)
- Bank accounts and investment accounts
- Retirement accounts like IRAs and 401(k)s
- Life insurance death benefits (if you own the policy)
- Business interests
- Personal property with significant value (vehicles, jewelry, collectibles)
Even if you’ve set up a revocable living Trust to avoid probate, those assets are still counted in your taxable estate for Illinois estate tax purposes. A Trust helps your family avoid the court process, but it doesn’t automatically shield you from estate taxes.
The Portability Problem: Why Married Couples Need to Plan Carefully
Here’s something that surprises a lot of couples: Illinois does not allow portability.
At the federal level, if one spouse dies and doesn’t use their full estate tax exemption, the surviving spouse can “inherit” that unused exemption. This is called portability, and it effectively doubles the exemption for married couples.
Illinois doesn’t work that way. Each spouse gets their own $4 million exemption, and if you don’t use it, you lose it.
This matters especially for couples who own everything jointly or who plan to leave everything to the surviving spouse. Without proper planning, that first spouse’s exemption goes to waste—and when the second spouse dies, the estate only gets one exemption instead of two.
However, with proven estate planning strategies, married couples can effectively use both exemptions and potentially shelter up to $8 million from Illinois estate tax.
Smart Strategies to Reduce Your Illinois Estate Tax Exposure
There’s no “magic wand” that makes estate taxes disappear, but there are proven strategies that can significantly reduce what your family owes.
1. Annual Gifting
One of the simplest ways to reduce your taxable estate is to give assets away during your lifetime. As of 2025, you can give up to $19,000 per person per year without triggering any gift tax consequences. If you’re married, you and your spouse together can gift $38,000 per person annually.
This is particularly effective if you have children, grandchildren, or other family members you want to support. Over time, these gifts can meaningfully reduce the size of your estate.
2. Irrevocable Life Insurance Trusts (ILITs)
If you own a life insurance policy, the death benefit is included in your taxable estate. For many people, this pushes them over the $4 million threshold.
An Irrevocable Life Insurance Trust removes the policy from your estate. The Trust owns the policy, pays the premiums, and when you pass away, the death benefit goes to the Trust—not your estate. This means no Illinois estate tax on that money, and your beneficiaries have immediate liquidity to pay any other taxes or expenses.
3. Credit Shelter Trusts (Bypass Trusts)
For married couples, a credit shelter Trust—also called a Bypass Trust or AB Trust—can help you preserve both spouses’ $4 million exemptions.
When the first spouse passes, a portion of their assets (up to the exemption amount) goes into the Trust instead of directly to the surviving spouse. The Trust benefits the surviving spouse during their lifetime, but the assets aren’t part of their estate when they die. This strategy can effectively shelter up to $8 million from Illinois estate tax for a married couple.
4. Charitable Giving
If you have charitable intentions, incorporating them into your estate plan can reduce your taxable estate. Charitable gifts and bequests are not subject to estate tax, so leaving a portion of your estate to a qualified charity reduces both your estate’s size and the tax bill.
You can also establish a Charitable Remainder Trust, which provides income to you or your beneficiaries during your lifetime and then passes the remaining assets to charity. This strategy offers tax benefits now and reduces your taxable estate later.
5. Trusts for Farmland and Business Interests
For families who own farmland or closely held businesses, specialized planning is essential. Farmland values in Illinois have skyrocketed in recent years, and what was once a modest family farm can now easily exceed the $4 million threshold.
Strategies like Family Limited Partnerships or Limited Liability Companies can help transfer business or farm interests while taking advantage of valuation discounts. Trusts can also be structured to hold these assets outside your taxable estate while allowing you to maintain some control during your lifetime.
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Why Homeowners, Landowners, and Farmers Should Plan Ahead
If you live in Frankfort or the surrounding area, you’re in a community where property values have held strong. Homes that were worth $200,000 twenty years ago are now worth $500,000 or more. Farmland that grandparents bought decades ago is now valued at $15,000 per acre or higher.
For farmers especially, the Illinois estate tax can be devastating. A family farm of just 300 acres can easily be valued at $4.5 million or more—enough to trigger significant estate tax. And because most of that value is tied up in land and equipment (not cash), families often have no choice but to sell the farm just to pay the tax bill.
We’ve seen this happen to local families. And it’s avoidable with the right planning.
This is true for business owners, as well. If you’ve spent decades building a successful company, the last thing you want is for your family to be forced to liquidate it to pay estate taxes. With proper business succession planning and estate planning working together, you can protect what you’ve built.
The Benefits of Working with a Local Estate Planning Attorney
Estate planning strategies vary dramatically from state to state. The strategies that work for someone in Florida won’t necessarily work in Illinois because of our unique state tax situation.
When you work with M.W. Brady Law, you’re working with a compassionate team of local attorneys who understand Illinois estate tax law inside and out. We know the local real estate market in Frankfort, Crete, and the surrounding communities. We understand what farmland is worth in the area and how quickly property values can change. And we’ve helped families just like yours structure their estates to minimize taxes and maximize what goes to the people they love.
We also handle complex cases that some newer attorneys shy away from. Whether your estate includes multiple properties, business interests, farmland, or complicated family dynamics, we have the experience to guide you through it.
Give us a call at (708) 532-3655 to schedule your no-pressure consultation with our estate planning team.