Illinois Estate Tax: The $4 Million Cliff, Rates, and Exemptions

The Illinois estate tax is one piece of a larger picture; the mechanics of wills, trusts, and probate are covered in Illinois estate planning. This article focuses on the tax itself: when a return is required, how the exclusion and its “cliff” work, what the rate schedule looks like, and how Form 700 is filed and paid.

When Illinois requires an estate tax return

Illinois requires an estate tax return, Form 700, when a decedent’s estate is large enough to cross the state’s filing threshold. The Illinois Attorney General administers the Illinois estate tax, and returns are filed with that office rather than with the Illinois Department of Revenue. A return is required when the estate’s tentative taxable estate plus adjusted taxable gifts is more than $4,000,000. An estate at or below $4,000,000 owes no Illinois estate tax and files no Form 700.

That $4,000,000 figure comes from the definition of the “state tax credit” in 35 ILCS 405/2, which recognizes an exclusion amount of $4,000,000 for persons dying on or after January 1, 2013. The gross estate that gets measured against the threshold is the same gross estate defined for federal purposes, so real estate, bank and investment accounts, retirement accounts, business interests, and life insurance the decedent owned are all counted.

The $4 million exclusion, the cliff, and no portability

Two features of the $4,000,000 exclusion catch families off guard. First, the amount is fixed. Unlike the federal exclusion, it is not adjusted for inflation, and it has stayed at $4,000,000 for every death since January 1, 2013 under 35 ILCS 405/2. Second, Illinois does not allow portability. Federal law lets a surviving spouse keep the unused portion of a deceased spouse’s exclusion, but Illinois has no matching provision, so a $4,000,000 exclusion that goes unused at the first spouse’s death is lost.

The $4,000,000 threshold is often called a cliff because the exclusion works as a filing-and-computation threshold rather than as a straight deduction from the estate. An estate of exactly $4,000,000 owes nothing, but once an estate crosses that line, the tax is computed on the adjusted taxable estate under the state’s rate table, and the effective rate on the first dollars above $4,000,000 is far higher than the low bracket percentages suggest. The exact figure for any given estate comes from the Attorney General’s estate tax calculator.

How the Illinois estate tax is calculated: rates and Form 700

Illinois does not use a single flat rate. The tax is imposed by 35 ILCS 405/3 on every taxable transfer of property with a tax situs in Illinois, and the amount is based on the pre-2001 federal state death tax credit that 35 ILCS 405/2 carries forward. The Attorney General publishes the State Death Tax Credit Table that the calculator applies: its graduated rates run from 0.8% on the lowest bracket up to a top marginal rate of 16% on adjusted taxable estate over $10,040,000.

To produce a number, the calculator asks for two amounts drawn from Schedule A or B of Form 700: the Illinois tentative taxable estate, and the Illinois tentative taxable estate plus adjusted taxable gifts. The 2013–2026 estate tax calculator returns the tax and will not compute unless both fields are entered. Because the rate table and the exclusion interact, the tax is not simply 16% of the amount over $4,000,000; running the two figures through the calculator is the only reliable way to see the actual liability.

Filing Form 700, deadlines, and payment

Form 700 is the Illinois Estate and Generation-Skipping Transfer Tax Return. The current form for deaths in 2023 through 2026, along with the instruction sheet, is posted by the Attorney General.

1. Determine whether a return is required

   Add the tentative taxable estate to any adjusted taxable gifts. If the total is more than $4,000,000, Form 700 is required and Illinois estate tax may be due; if it is $4,000,000 or less, no Illinois return is filed. The Attorney General’s estate tax page posts the current form and instructions for each year of death.

2. Complete Form 700 and compute the tax

   Fill in the schedules, then compute the tax using the online calculator. Attach a copy of the federal Form 706 if one was filed. For deaths after 2005 where no federal return is required, the person filing the Illinois return must instead attach schedules of assets in the form the Attorney General prescribes, under 35 ILCS 405/6.

3. File the return with the Attorney General

   File the executed original return with the Estate Tax Section of the Illinois Attorney General’s Office, in either the Chicago or Springfield location. The return and any federal return filed with it are confidential by statute.

4. Pay the Illinois State Treasurer

   Pay the Illinois estate tax, interest, and penalties directly to the Illinois State Treasurer. Payments have gone to the State Treasurer rather than to county treasurers since July 1, 2012, under 35 ILCS 405/6.

Married couples, the marital deduction, and the Illinois QTIP election

Because Illinois offers no portability, married couples with combined estates above $4,000,000 often plan to use both spouses’ exclusions rather than rely on one. Property left to a surviving spouse qualifies for a marital deduction and is not taxed at the first death, but property passing outright to the survivor then becomes part of the survivor’s own estate and counts against the survivor’s single $4,000,000 exclusion.

Illinois addresses this with a separate, state-only QTIP election. Under 35 ILCS 405/2, the person filing the Illinois return may elect a marital deduction for qualified terminable interest property (QTIP) for Illinois purposes that is independent of any federal QTIP election. That flexibility lets an estate defer Illinois tax on property placed in a qualifying marital trust while still making full use of the first spouse’s $4,000,000 exclusion on the rest of the estate. The property covered by the election is later included in the surviving spouse’s estate under the same rules that apply federally.