A widow came to my office about a year after her husband died, holding a tax bill she never saw coming. Their combined estate was worth a little over five million dollars — a farm, a home, some retirement accounts, and life insurance. She had assumed that because the federal estate tax exemption was in the millions, they were safely under the line. What she didn't know was that Illinois has its own estate tax, with a much lower threshold and no way to carry over her late husband's exemption. The bill ran into six figures, and most of it could have been avoided.
This is the trap that catches Central Illinois families more than any other. People read about the federal estate tax, see that the exemption is enormous, and conclude they have nothing to worry about. Then Illinois sends a bill. The state estate tax operates on entirely different rules, and if you don't plan for it, your family pays the price.
How Illinois differs from the federal system
The federal estate tax exemption is very high. For 2026 it is $15 million per person, a level that was made permanent under the legislation enacted in 2025. At that threshold, the vast majority of families owe no federal estate tax at all.
Illinois is a different story. The Illinois estate tax exclusion is $4,000,000. An estate worth more than that may owe Illinois estate tax even when it owes nothing to the federal government. For a farm family, a business owner, or anyone whose home, retirement accounts, and life insurance add up over time, four million dollars is not the remote figure it once seemed. Land values alone have pushed many Central Illinois estates over the line.
The portability trap
Here is the single most important difference, and the one that cost the widow so dearly. The federal system has portability. When one spouse dies without using the full federal exemption, the survivor can carry over the unused portion, effectively doubling the amount the couple can pass tax-free.
Illinois has no portability. None. The $4,000,000 exclusion cannot be transferred from one spouse to the other. If the first spouse to die leaves everything outright to the survivor — which feels like the natural, loving thing to do — that first spouse's $4,000,000 exclusion is simply lost. When the survivor later dies, the entire combined estate is measured against a single $4,000,000 exclusion instead of two. That is exactly what happened in the case I described, and it is one of the most expensive mistakes I see.
The good news is that this is preventable. With proper planning — often using a trust structure that captures the first spouse's exclusion instead of wasting it — a married couple can shelter up to $8,000,000 from Illinois estate tax rather than just $4,000,000. The plan has to be in place before the first death. After that, the opportunity is gone.
Property in more than one state
If you own property in more than one state, the picture gets more complicated. Real estate is generally taxed by the state where it sits. A vacation home in another state, farmland across a state line, or a condo in a warmer climate can pull your estate into a second state's tax system. Some states impose an estate tax, a few impose an inheritance tax — which is paid by the people who inherit rather than by the estate — and many impose neither. You need to know how each state where you own property treats what you own there, because your Illinois plan alone won't answer the question.
For families with farmland in particular, multi-state ownership and the Illinois threshold together can create real exposure. We address those issues in our farm succession work as well as in general estate planning.
What planning actually looks like
Planning for state estate tax is not about hiding assets or chasing loopholes. It is about using the tools the law already provides. A properly drafted trust can preserve both spouses' Illinois exclusions. Lifetime gifting can reduce the size of a taxable estate. Life insurance, owned the right way, can provide the cash to pay a tax bill without forcing a sale of the farm or the family business. Charitable giving can lower the taxable estate while supporting causes you care about. Which combination is right depends on your family, your assets, and your goals.
The one thing every one of these tools has in common is timing. They have to be set up while you are alive and, in the case of married couples, before the first spouse dies. A plan you keep meaning to make does nothing.
Don't wait for the bill
The widow in my office could not undo what had already happened. You still can. If your estate — counting your home, land, accounts, and life insurance — is anywhere near $4,000,000, it is worth finding out where you stand and what a sound plan could save. The federal figures will keep changing year to year, but the Illinois threshold and the absence of portability have been remarkably stable, and they are what catch most local families.
We help families across Bloomington-Normal, Lincoln, and Central Illinois plan for exactly these issues. If you would like to know how the Illinois estate tax applies to you, take a look at our estate planning practice and reach out.