Facebook Twitter Linkedin Rss

Wills, Trust and Estate Planning

Naperville Estate Tax Planning

Estate Tax Lawyer in Naperville Illinois

Naperville estate tax planning

Rob, the old version is doing too much historical narration and not enough to answer the question a prospective client actually has: “Do I have an estate tax problem in Illinois, and what can I do about it?” I would make the Illinois tax the centerpiece and treat the federal tax as the secondary issue.

I verified the current figures before rewriting it. For 2026, the federal estate, gift, and GST exemption is $15 million per person, with a 40% top rate; the annual gift-tax exclusion remains $19,000 per recipient. Federal portability remains available to married couples through a Form 706 election, while the GST exemption is not portable. (IRS) Illinois continues to use a $4 million estate-tax threshold, does not recognize federal portability, and permits a separate Illinois QTIP election. (Illinois Attorney General)

Here is how I would rewrite the page.

Naperville Estate Tax Planning

Estate Tax Lawyer in Naperville, Illinois

Estate taxes are no longer an issue only for the extraordinarily wealthy, particularly if you live in Illinois.

Federal law now provides a very large estate tax exemption, but Illinois has its own estate tax with a much lower $4 million threshold. As a result, an Illinois family can owe no federal estate tax at all and still face a substantial Illinois estate tax liability.

For my Naperville estate planning clients, that difference is often the most important starting point in estate tax planning.

Estate tax planning involves more than simply trying to reduce taxes. A good plan should coordinate your trusts, beneficiary designations, lifetime gifts, retirement assets, real estate, business interests, and the way assets are divided between spouses. The objective is to minimize unnecessary taxes while preserving flexibility and ensuring that your assets ultimately pass where you intend.

Illinois Estate Tax: The $4 Million Problem

Illinois currently imposes an estate tax when an estate exceeds the state’s $4 million exclusion amount.

That number is significantly lower than the federal estate tax exemption and, unlike the federal exemption, it is not automatically adjusted upward each year for inflation.

This means Illinois estate tax planning should be considered by many families whose estates would never be subject to federal estate tax.

When determining the size of an estate, it is also important to look beyond bank and investment accounts. Depending on the circumstances, the taxable estate may include:

  • Your home and other real estate

  • Retirement accounts

  • Brokerage and investment accounts

  • Business interests

  • Life insurance proceeds

  • Certain jointly owned property

  • Other assets owned or controlled at death

A family that does not consider itself particularly wealthy can therefore approach or exceed the Illinois estate tax threshold more easily than expected.

Illinois Does Not Have Estate Tax Portability

This distinction is particularly important for married couples.

Federal law allows a surviving spouse, in appropriate circumstances, to preserve a deceased spouse’s unused federal estate tax exemption through a procedure known as portability.

Illinois does not offer comparable portability of its $4 million exclusion.

For example, simply leaving everything outright to a surviving spouse may avoid estate tax at the first death because of the marital deduction, but it can also waste the first spouse’s Illinois estate tax exclusion. The surviving spouse may then have a significantly larger taxable estate later.

Proper trust planning can often preserve greater use of both spouses’ Illinois estate tax exclusions while still providing for the surviving spouse.

For married Illinois residents approaching the $4 million threshold, this is one of the primary reasons I recommend reviewing how assets are owned and how the estate plan operates at the first spouse’s death.

Illinois QTIP Planning

Illinois law also permits an Illinois-only Qualified Terminable Interest Property, or QTIP, election.

A QTIP election can allow property to qualify for the marital deduction and defer Illinois estate tax until the surviving spouse’s death, while still allowing the first spouse to control where the remaining property ultimately passes.

Illinois QTIP planning can be particularly useful because the Illinois and federal estate tax exemptions are so different.

The appropriate strategy depends on the size of the estate, how assets are divided between spouses, the ages and needs of the spouses, expected appreciation, and the family’s ultimate distribution goals.

There is no single trust formula that is right for every married couple.

Federal Estate Tax Exemption

Beginning in 2026, the federal estate tax basic exclusion amount is $15 million per individual, with future inflation adjustments.

For a married couple, careful planning and a properly elected federal portability election can potentially preserve approximately $30 million of combined federal estate tax exclusion in 2026, although portability is not automatic and should not simply be assumed.

The federal estate tax rate on taxable amounts above the available exemption can reach 40%.

Because the federal exemption is now substantially higher than the Illinois exemption, most of my Illinois clients who require estate tax planning are concerned first with Illinois estate tax, rather than federal estate tax.

For larger estates, however, both systems must be considered together.

Federal Estate Tax Portability

Federal portability allows a surviving spouse to use certain unused estate tax exemption of a deceased spouse. The unused amount is commonly referred to as the Deceased Spousal Unused Exclusion, or DSUE.

Portability generally requires the deceased spouse’s estate to file a Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, and elect portability.

The normal deadline for Form 706 is nine months after death, although an extension may be available. Federal law also currently provides a simplified procedure allowing some estates that were not otherwise required to file a Form 706 to make a late portability election within five years after death.

Portability can be extremely useful, but it is not necessarily a substitute for trust planning.

Among other limitations:

  • Federal portability does not preserve the deceased spouse’s GST exemption.

  • Illinois does not recognize federal portability for purposes of its estate tax.

  • Assets left outright to the surviving spouse may later appreciate and become part of the survivor’s taxable estate.

  • Trust planning may provide creditor protection, remarriage protection, and greater control over ultimate beneficiaries.

  • Blended families may have reasons to use trusts that have nothing to do with taxes.

For those reasons, the decision between portability and traditional trust-based planning should be made as part of the overall estate plan rather than as a tax decision in isolation.

Lifetime Gift Tax Exemption

Federal gift and estate taxes operate under a unified system.

In 2026, an individual generally has a $15 million lifetime federal estate and gift tax exemption. To the extent that exemption is used for taxable lifetime gifts, the amount remaining for transfers at death is generally reduced.

Large lifetime gifts can nevertheless be an effective estate planning strategy, particularly when assets are expected to appreciate substantially.

Gift planning should also consider income tax basis, control of the transferred assets, cash-flow needs, and the Illinois estate tax consequences. Avoiding estate tax does not necessarily produce the best overall tax result if the strategy creates unnecessary capital gains taxes later.

The Annual Gift Tax Exclusion

For 2026, an individual may generally give up to $19,000 per recipient per year without using any portion of the donor’s lifetime federal gift and estate tax exemption.

A married couple can potentially give $38,000 per recipient per year using both spouses’ annual exclusions.

Depending on how a gift is made, spouses may need to file a federal gift tax return and elect to treat the gift as having been made one-half by each spouse.

The annual exclusion is not the same thing as the lifetime exemption. Giving more than $19,000 to someone does not automatically mean that gift tax must be paid. In many cases, the excess simply must be reported and reduces the donor’s remaining lifetime exemption.

Certain direct payments of tuition or qualifying medical expenses can also receive separate federal gift tax treatment and may not count against the annual exclusion when the statutory requirements are satisfied.

Generation-Skipping Transfer Tax

The federal Generation-Skipping Transfer Tax, commonly called the GST tax, is a separate transfer tax designed to apply to certain transfers that skip a generation.

A common example is a transfer from a grandparent to a grandchild, although the rules can also apply to trusts and to transfers involving unrelated beneficiaries who are substantially younger than the person making the transfer.

For 2026, the federal GST exemption is $15 million per individual, and the maximum GST tax rate is 40%.

GST planning is particularly important when creating long-term trusts intended to benefit children, grandchildren, and later generations.

Unlike the ordinary federal estate tax exemption, a deceased spouse’s unused GST exemption cannot be transferred to the surviving spouse through portability. Proper allocation of the GST exemption can therefore be important when significant multigenerational wealth is involved.

Who Should Consider Estate Tax Planning in Illinois?

You should consider reviewing your estate plan for potential estate tax exposure if:

  • Your individual or combined family estate is approaching or exceeds $4 million.

  • You are married and most assets are owned by one spouse.

  • Your existing estate plan simply leaves everything to the surviving spouse.

  • You own a closely held business or professional practice.

  • You own valuable real estate.

  • Your estate includes substantial retirement accounts.

  • You have significant life insurance.

  • You expect your assets to appreciate materially in the future.

  • You have made substantial lifetime gifts.

  • You have moved to Illinois with an estate plan prepared in another state.

  • You have an older trust that was drafted when federal and Illinois estate tax exemptions were very different.

Even if your estate is currently below the Illinois threshold, planning may still make sense if investment growth, real estate appreciation, life insurance, or retirement assets could eventually push the estate above it.

Estate Tax Planning for Naperville and Illinois Families

Estate tax planning has changed considerably over the last several years. The enormous difference between the $15 million federal exemption and the $4 million Illinois threshold means that Illinois residents should not rely on general information about the federal estate tax when evaluating their own plans.

For many Naperville families, the central question is not whether they are wealthy enough to owe federal estate tax. It is whether their existing estate plan makes effective use of the Illinois estate tax rules.

I regularly review estate plans to determine whether Illinois or federal estate taxes are a realistic concern and, if so, whether trust planning, asset allocation between spouses, lifetime gifting, QTIP planning, or other strategies are appropriate.

If your estate is approaching the Illinois estate tax threshold, or if you have an older estate plan that has not been reviewed since the tax laws changed, you can book a call to discuss whether your current plan still makes sense.