In the wake of the recently passed federal tax legislation—dubbed by some as the “Big Beautiful Bill”—many high-net-worth individuals are breathing a sigh of relief. Among other changes, the bill makes permanent the historically high federal estate and gift tax exemption, currently set at $13.99 million per person ($27.98 million for married couples in 2025, indexed for inflation). But while Washington may be easing the burden, Springfield hasn’t followed suit—which makes Illinois estate tax planning more important than ever.
Illinois Still Imposes a Separate Estate Tax
Despite generous federal exemptions, Illinois imposes its own estate tax, with an exemption of only $4,000,000 per individual. This amount is not indexed for inflation, not portable between spouses, and not linked to the federal exemption. Without proper planning, estates that are exempt from federal tax may still owe significant Illinois estate tax.
No portability means the unused exemption of the first spouse to die is lost unless captured through a credit shelter trust or similar planning strategy.
No Illinois Gift Tax = Opportunity — But Read the Fine Print
Illinois does not have a gift tax, which allows residents to make lifetime gifts without triggering any state-level gift reporting or tax. This makes Illinois one of the best jurisdictions for leveraging the federal unified credit during life.
However, there’s a significant caveat: Illinois includes prior taxable gifts—those reportable on a federal Form 709—in calculating whether an estate exceeds the $4 million exemption for state estate tax purposes.
Here’s how it works:
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If the gross estate at death is below $4 million, but prior taxable gifts bring the cumulative total over $4 million, an Illinois estate tax return is required, and estate tax may be due—even though no Illinois gift tax was ever imposed.
Example: An Illinois resident dies with $3.9 million in assets and made $1 million in prior taxable gifts. For Illinois estate tax purposes, the taxable base is $4.9 million, which would result in a total Illinois estate tax liability of approximately $244,565.
With that said, the maximum amount an estate would pay is $253,986 for estates under $4 million but exceed the exemption due to gift inclusion.
✅ Use the Illinois Estate Tax Calculator from the Attorney General’s Office to estimate your estate’s potential tax exposure under these rules.
This structure creates a planning trap for families assuming that gifts “zero out” their taxable estate.
When Gifting Still Works
Gifting remains an essential part of Illinois estate tax planning—especially for individuals with estates far exceeding $4 million. For example:
A single Illinois resident with a $10 million net worth could gift $8 million during life using their federal exemption. If properly structured, this reduces their gross estate at death to $2 million, which is below the Illinois exemption. Even though prior gifts are included for threshold purposes, the estate would only owe $92,910. Without gifting, the full $10 million could be taxed, resulting in $$926,923 in avoidable Illinois estate tax.
Understand the Trade-Off: Gifting vs. Step-Up in Basis
While gifting can be an effective strategy for reducing Illinois estate tax, it’s not without downsides—particularly when dealing with highly appreciated assets such as real estate, business interests, or long-held investments.
The most significant drawback is the loss of a step-up in basis at death. When assets pass through a decedent’s estate, they typically receive a step-up in basis to fair market value as of the date of death. This adjustment eliminates unrealized capital gains, allowing heirs to sell inherited property with little or no capital gains tax.
In contrast, when an asset is gifted during life:
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The recipient takes the donor’s original cost basis, not the current market value.
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If the asset is later sold, the donee could face substantial capital gains tax on the appreciation.
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For highly appreciated assets, this could outweigh the Illinois estate tax savings.
Example:
Suppose you purchased real estate for $500,000, and it is now worth $2.5 million.
If gifted during life, your children inherit your $500,000 basis—and could owe capital gains tax on $2 million upon sale.
If the asset is retained and passed at death, they receive a new stepped-up basis of $2.5 million, eliminating the gain.
Therefore, the decision to gift should not be made solely based on estate tax exposure. It requires careful coordination with your broader income tax strategy and family wealth objectives.
This is where a tailored, attorney-led plan becomes essential—identifying which assets are best suited for gifting and which should be retained to maximize tax efficiency.
Key Takeaway: Act Now—Illinois Law Hasn’t Changed
Although the 2017 increase in the federal estate tax exemption has been made permanent, Illinois law remains restrictive. No portability. No inflation adjustment. And prior taxable gifts count, in certain circumstances, against the exemption threshold.
The result? High-net-worth individuals and families in Illinois face significant state-level estate tax exposure—unless they plan proactively.
Strategic Tools for Illinois Estate Tax Planning
At A.H.Steinmetz, Ltd., we help clients navigate both state and federal tax regimes using tools such as:
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Lifetime gifting to children or irrevocable trusts
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Spousal Lifetime Access Trusts (SLATs)
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Irrevocable Life Insurance Trusts (ILITs)
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Family LLCs and valuation discounting strategies
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Charitable planning for large estates
- Land Trusts for real estate
These tools are best used before death, while the full federal exemption is intact and before further changes in Illinois law.
Internal Resources for Further Reading
Bottom Line: Illinois Estate Tax Planning Is More Important Than Ever
The “Big Beautiful Bill” eliminated the federal sunset threat to the estate tax exemption—but Illinois estate tax planning remains essential. The low exemption, lack of portability, and gift inclusion rules are still in effect. Without strategic action, Illinois families could forfeit hundreds of thousands—or millions—in avoidable tax.
Protect Your Legacy—Before It’s Too Late
At A.H.Steinmetz, Ltd., we help Illinois residents develop comprehensive, tax-efficient estate plans that minimize both state and federal exposure. Whether you’re managing $5 million or $25 million in assets, the right strategy can mean the difference between wealth preserved and wealth lost to tax.
Schedule a confidential consultation today and take control of your Illinois estate tax planning.
