Is Inheritance Taxable in Illinois?

Inheriting assets often raises questions about potential tax implications. Understanding how taxes apply to a deceased person’s assets is important for beneficiaries or those managing an estate. Various tax structures, sometimes called “death taxes,” can affect wealth transfer, with application depending on specific regulations. These taxes are typically imposed either on the overall value of a deceased person’s estate or directly on the recipient of the inherited property.

Illinois Inheritance Tax vs. Estate Tax

Illinois does not impose an inheritance tax. This means individuals receiving money or property as an inheritance in Illinois are not directly taxed on those assets by the state. The absence of an inheritance tax simplifies the process for beneficiaries, as they do not face a separate state-level tax obligation.

While Illinois does not have an inheritance tax, it does have an estate tax. An estate tax is levied on the total value of a deceased person’s assets before distribution to heirs, rather than on the individual heir’s inheritance. This distinction is important because the tax is paid by the estate itself, typically by the executor or administrator, from its funds before any distributions. Therefore, while heirs do not pay a direct inheritance tax, the amount they ultimately receive could be reduced if the estate’s value meets the taxable threshold.

Illinois Estate Tax Specifics

The Illinois estate tax applies to estates exceeding a specific exemption threshold. For deaths occurring on or after January 1, 2011, this exemption amount is $4 million. If an estate’s gross value, including certain adjusted taxable gifts, exceeds this $4 million threshold, an Illinois estate tax return, Form IL-700, must be filed, even if no tax is ultimately owed.

Assets included in the Illinois taxable estate encompass real estate, bank accounts, investment portfolios, retirement accounts, personal property like vehicles and household furnishings, and proceeds from life insurance policies owned by the decedent. The estate tax is calculated on a graduated scale, with rates ranging from 0.8% to 16%, depending on the estate’s value.

Deductions can reduce an estate’s taxable value. These include funeral expenses, administration expenses, and legitimate debts. Property passing to a surviving spouse may qualify for an unlimited marital deduction, and charitable contributions to qualifying organizations can also reduce the taxable estate. Unlike the federal estate tax, the Illinois estate tax exemption is not portable between spouses; each spouse has their own $4 million exemption that cannot be transferred.

Federal Estate Tax Overview

The federal government also imposes an estate tax, in addition to state-level taxes. This federal tax operates independently of state estate taxes and applies nationwide. For 2025, the federal estate tax exemption is $13.99 million per individual. This exemption is significantly higher than Illinois’s state exemption, meaning many estates subject to Illinois estate tax may not be subject to federal estate tax. This federal exemption is scheduled to increase to $15 million per person starting January 1, 2026, and will continue to be indexed for inflation.

The federal taxable estate includes assets such as cash, real estate, stocks, bonds, business interests, retirement accounts, and certain life insurance proceeds. The fair market value of these assets at the time of death is used for valuation.

Similar to state provisions, the federal estate tax allows deductions to reduce the taxable estate. These include the unlimited marital deduction for property passing to a U.S. citizen surviving spouse, and deductions for charitable contributions to qualified organizations. Mortgages, other debts, and administrative expenses incurred during estate settlement are also deductible. The federal estate tax rate ranges from 18% to 40% on the portion of the estate exceeding the exemption. Unlike the Illinois estate tax, the federal estate tax exemption is portable between spouses, allowing a surviving spouse to utilize any unused portion of a deceased spouse’s exemption.

Administering Estate Tax Obligations

Fulfilling estate tax obligations involves specific procedural steps for both state and federal taxes, particularly when an estate exceeds applicable thresholds. For Illinois estate tax, the executor or administrator must file Form IL-700, the Illinois Estate and Generation-Skipping Transfer Tax Return. This form is submitted to the Illinois Attorney General’s Office.

For estates meeting the federal filing threshold, IRS Form 706, the United States Estate (and Generation-Skipping Transfer) Tax Return, must be filed with the Internal Revenue Service. Both Form IL-700 and Form 706 are generally due nine months after the decedent’s death. If additional time is needed, a six-month extension can typically be requested for both returns.

Payment of any Illinois estate tax due is made directly to the Illinois State Treasurer. Required documentation often includes asset appraisals, financial statements, and a copy of the completed federal Form 706 if applicable. Given the complexities of valuing assets, applying deductions, and navigating filing requirements, consulting an estate attorney or tax professional is a practical step.