Estate and Inheritance Tax in Illinois 2026
Estate and Inheritance Tax in Illinois 2026
Illinois is one of a minority of states that imposes its own estate tax. The Illinois estate tax exemption is $4,000,000, with graduated rates up to 16%. Illinois does not have an inheritance tax. Unlike the federal estate tax, Illinois does not allow portability between spouses. For families with estates above the $4 million threshold, this creates planning considerations that do not exist in states like Texas or Florida. This guide explains the Illinois estate tax, the federal estate tax, income tax obligations, and Medicaid estate recovery.
Illinois Has a State Estate Tax
Illinois imposes a state estate tax under the Illinois Estate and Generation-Skipping Transfer Tax Act (35 ILCS 405/).
Exemption: $4,000,000. This is a deduction from the Illinois taxable estate.
Who must file: Estates where gross assets plus adjusted taxable lifetime gifts exceed $4 million.
Rate schedule: Illinois uses a graduated rate schedule based on the pre-2001 federal State Death Tax Credit table. Rates range from 0.8% to a maximum of 16%. The calculation is complex: Illinois computes its tax as the maximum state death tax credit that would have been allowable under the Internal Revenue Code as in effect on December 31, 2001, less the $4 million exemption equivalent.
Filing details:
| Detail | Information |
|---|---|
| Form | Illinois Form 700 (Estate & Generation-Skipping Transfer Tax Return) |
| Filing deadline | 9 months from date of death |
| Payment deadline | 9 months from date of death (payment due even if extension filed) |
| Extension | 6 months — file Illinois Form 700-EXT or attach IRS Form 4768 approval |
| Where to file (Cook, DuPage, Lake, McHenry) | IL Attorney General, Revenue Litigation Bureau, 115 S. LaSalle St., Chicago, IL 60603 |
| Where to file (all other counties) | IL Attorney General, Revenue Litigation Bureau, 500 S. Second St., Springfield, IL 62701 |
| Payment | Remit to Illinois State Treasurer |
No portability. Unlike the federal estate tax, Illinois does not allow a surviving spouse to use the deceased spouse's unused exemption. Each person has their own $4 million exemption only. This is a significant planning difference for married couples with combined estates above $4 million.
Illinois Has No Inheritance Tax
An inheritance tax is different from an estate tax. An estate tax is paid by the estate before assets are distributed. An inheritance tax is paid by the person who receives the inheritance.
Illinois does not have an inheritance tax.
As of 2026, only five states impose an inheritance tax: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.
If you inherit money, property, or accounts from someone who died in Illinois, you owe no Illinois tax on what you receive. The estate pays the estate tax (if applicable) before distributing assets to beneficiaries.
Illinois Has a State Income Tax
Unlike Texas and Florida, Illinois has a flat state income tax. This means additional filings are required after a death.
Final Illinois income tax return. The deceased's final Illinois income tax return (Form IL-1040) covers January 1 of the year of death through the date of death. It is due April 15 of the following year.
Estate income tax. If the estate generates income after death (interest, dividends, rent, capital gains), the estate may owe Illinois income tax on that income.
Federal Estate Tax in 2026
The federal estate tax also applies to Illinois residents, in addition to the state estate tax.
Exemption. The federal estate tax exemption for deaths in 2026 is $15,000,000 per person, set by the One Big Beautiful Bill Act (P.L. 119-21, signed July 4, 2025).
Rate. The top federal estate tax rate is 40% on amounts above the exemption.
Filing. IRS Form 706, due 9 months after death. A 6-month extension is available via Form 4768, but any estimated tax owed must still be paid by the 9-month deadline.
Portability. At the federal level, a surviving spouse can inherit the deceased spouse's unused exemption by filing Form 706 even when no tax is owed. A simplified late election is available within 5 years of death under Rev. Proc. 2022-32.
Key difference. The federal exemption is $15 million. The Illinois exemption is $4 million. An estate worth $5 million owes nothing to the IRS but owes Illinois estate tax. This makes Illinois estate tax planning relevant for a much larger group of families than federal estate tax planning.
Illinois Estate Tax vs. Federal Estate Tax
| Feature | Federal | Illinois |
|---|---|---|
| Exemption (2026) | $15,000,000 | $4,000,000 |
| Top rate | 40% | 16% |
| Portability | Yes | No |
| Filing form | IRS Form 706 | Illinois Form 700 |
| Filing deadline | 9 months after death | 9 months after death |
| Deductibility | IL estate tax deductible on federal return | Federal estate tax NOT deductible on IL return |
Federal Income Tax After Death
Final Form 1040. The deceased's final federal income tax return covers January 1 through the date of death. Due April 15 of the following year. A 6-month extension is available via Form 4868.
Estate income tax, Form 1041. If the estate earns more than $600 in income after death, it must file Form 1041. The estate needs its own Employer Identification Number (EIN).
Form 56. File Form 56 with the IRS to notify them of the fiduciary relationship. File it promptly after appointment.
Form 1310. If claiming a refund on the deceased's final return and you are not the court-appointed executor or surviving spouse filing jointly, file Form 1310.
Step-Up in Basis
Under IRC Section 1014, inherited property receives a new cost basis equal to the fair market value at the date of death.
How it works. If someone bought stock for $50,000 and it was worth $200,000 when they died, the heir's basis is $200,000. If the heir sells for $205,000, they owe capital gains tax on $5,000, not $155,000.
Illinois is a common law state. Unlike community property states such as Texas or California, only the deceased spouse's share of jointly owned property receives a step-up. The surviving spouse's share retains its original basis. This can result in higher capital gains taxes when the surviving spouse sells jointly owned assets.
Tax Forms and Deadlines
| Tax | Form | Deadline | Extension |
|---|---|---|---|
| Illinois estate tax | Form 700 | 9 months after death | 6 months via Form 700-EXT |
| Federal estate tax | 706 | 9 months after death | 6 months via Form 4768 |
| Final federal income tax | 1040 | April 15 of following year | 6 months via Form 4868 |
| Final Illinois income tax | IL-1040 | April 15 of following year | Extension available |
| Estate income tax (federal) | 1041 | April 15 of following year | 5.5 months via Form 7004 |
| Fiduciary notification | 56 | Promptly upon appointment | N/A |
Medicaid Estate Recovery in Illinois
While the estate tax applies only to larger estates, Medicaid estate recovery is a concern for estates of any size.
If the deceased received Illinois Medicaid, the state may file a claim against the probate estate to recover what it paid for care (305 ILCS 5/5-13). The Illinois Department of Healthcare and Family Services (HFS) administers recovery.
Recovery methods:
- Estate claims filed against the probate estate
- TEFRA liens on real property of nursing facility residents not expected to return home
Protections: Recovery is deferred when a surviving spouse is living, a child under 21 survives, or a blind or disabled child survives. Undue hardship provisions may also apply.
Changes under P.A. 102-1037 (effective June 2, 2022): Restricts filing of new liens on real property as a means of collection. Estate recovery does not begin until the Medicaid recipient dies.
What MERP can reach: MERP claims apply to the probate estate only. Assets that pass outside probate (life insurance to a named beneficiary, retirement accounts with beneficiary designations, jointly held accounts, assets in trust) are generally not subject to recovery.
Gift Tax
The federal gift tax annual exclusion for 2026 is $19,000 per recipient. A person can give up to $19,000 to any number of people each year without filing a gift tax return. A married couple can jointly give $38,000 per recipient.
Illinois has no state gift tax.
For estates near the $4 million Illinois threshold, lifetime gifting is a meaningful planning strategy. Unlike the federal $15 million exemption, the $4 million Illinois threshold makes gifting relevant for a much broader group of families.
Estate Planning Considerations for Illinois Residents
The $4 million threshold matters. Because the Illinois exemption is $4 million (versus $15 million federal), many more Illinois families face a potential state estate tax than a federal estate tax. Estate planning for Illinois residents should specifically address the state threshold.
No portability means planning for both spouses. Since Illinois does not allow portability, married couples cannot simply rely on the surviving spouse inheriting the unused exemption. Credit shelter trusts and other strategies may be appropriate for couples with combined estates above $4 million.
TOD instruments. Illinois allows transfer-on-death instruments for residential real estate (755 ILCS 27/). Filing a TOD instrument avoids probate but does not reduce the taxable estate for Illinois estate tax purposes.
Beneficiary designations. Review beneficiary designations on retirement accounts, life insurance, POD bank accounts, and TOD securities registrations. These designations override the will.
Frequently Asked Questions
Does Illinois have an estate tax?
Yes. Illinois has a state estate tax with a $4,000,000 exemption. Graduated rates range from 0.8% to 16%. File Illinois Form 700 with the Attorney General's office within 9 months of death.
Does Illinois have an inheritance tax?
No. Illinois does not have an inheritance tax. The estate pays the tax, not the beneficiary.
What is the federal estate tax threshold in 2026?
$15,000,000 per person, set by the One Big Beautiful Bill Act (P.L. 119-21). The top rate is 40%. Form 706 is due 9 months after death.
Do I need to file an Illinois income tax return for the deceased?
Yes. Illinois has a flat state income tax. File Form IL-1040 for the period from January 1 through the date of death, due April 15 of the following year.
Does Illinois allow estate tax portability?
No. Unlike the federal estate tax, Illinois does not allow a surviving spouse to use the deceased spouse's unused $4 million exemption. Each person has their own exemption only.
What to Do Next
If you are an executor or family member managing the estate of someone who recently died in Illinois:
- Determine whether the estate exceeds the $4 million Illinois estate tax threshold. If so, contact an Illinois estate attorney and CPA immediately.
- File Illinois Form 700 within 9 months of death (if applicable).
- File the final Illinois income tax return (Form IL-1040) for the year of death.
- If the estate also exceeds $15 million, file federal Form 706.
- If the deceased received Medicaid, understand what HFS may claim before distributing assets.
- Obtain an EIN for the estate before any estate income is received.
For the full sequence of tasks after a death, see the complete guide to what to do when someone dies in Illinois.
Kaira organizes every step for your state — deadlines, forms, and next actions — so nothing gets missed. See how it works.
This guide reflects Illinois and federal estate tax law as of April 2026. Tax laws change. For estates near the $4 million Illinois threshold or the $15 million federal threshold, consult an Illinois-licensed estate planning attorney and a CPA.
Sources: 35 ILCS 405/ (Illinois Estate and Generation-Skipping Transfer Tax Act); IRC Section 2010(c)(3) (Federal Estate Tax Exemption); IRC Section 1014 (Step-Up in Basis); illinoisattorneygeneral.gov; irs.gov