Estate taxes can diminish what people inherit. When an estate is large enough to be subject to estate taxes, state and federal tax authorities can demand a portion of the total estate value before beneficiaries or heirs receive their inheritances.
Estate taxes generally only apply to relatively large estates. Those with business holdings, well-funded retirement accounts and real estate in their names could potentially owe either state or federal estate taxes after they die. Understanding when those taxes may be an issue can help people plan in advance to minimize their future tax liability.
The Illinois threshold is lower
Most states have abolished their state-level estate taxes, but Illinois has not. The Illinois state exemption threshold is substantially lower than the federal threshold for estate taxes.
People who live in Illinois could owe estate taxes after they die if the total value of their personal holdings is $4 million or more. The Illinois tax rate for estate taxes can be as high as 16%. People may need to plan in advance to diminish how much property they directly own to avoid paying Illinois estate taxes.
The federal threshold is substantially higher. As of 2026, only those with $15 million or more in assets are vulnerable to federal estate taxes. However, the federal estate tax rate is also substantially higher than the state tax rate. An estate may need to pay anywhere from 18 to 40% of its total value to the federal government.
Trusts, changes in ownership and strategic gifts are among the strategies used by those who want to minimize or avoid estate taxes. Working with an estate planning attorney can help people identify and minimize estate tax liability, which can allow their loved ones to inherit as much as possible from their estates.
