Illinois Estate Tax Statute: Thresholds, Rates, and Filing Form 700

The Illinois estate tax applies to estates worth more than $4 million, and once an estate crosses that line, tax is calculated on the entire estate starting from the first dollar rather than only on the excess.¹ That $4 million threshold sits far below the 2026 federal exemption of $15 million per person, so many Illinois families owe state tax even when they owe nothing to the IRS.² Rates run from 0.8% to 16%, the return is due nine months after death, and the tax is administered by the Illinois Attorney General rather than the Department of Revenue.

Who Owes the Tax

Two groups are on the hook. Illinois residents owe on everything they own at death, wherever the property is located. Non-residents owe only on property physically situated in Illinois, such as real estate, tangible personal property, or business interests in the state.¹ The gross estate mirrors the federal definition under Internal Revenue Code Section 2031, pulling in real estate, bank accounts, investments, retirement accounts, and any other property the decedent owned or held an interest in at death.³

Illinois does not impose a separate inheritance tax. Beneficiaries are not individually taxed on what they receive, though the estate tax reduces what is available to distribute.

The $4 Million Cliff

Most estate tax systems work like income tax brackets, where only the amount above the exemption is taxed. Illinois does not. The $4 million figure is an exclusion threshold, not a credit. An estate worth $3,999,999 owes nothing. An estate worth $4,000,001 is taxed on the full amount using the graduated rate table starting from dollar one.¹ The zone just above $4 million carries a disproportionately harsh effective rate for that reason.

Lifetime taxable gifts count toward the threshold. If you die with a $2 million estate but made $2.5 million in reportable taxable gifts during your lifetime, the combined $4.5 million pushes you over the cliff and triggers the tax.⁴ The tax itself is computed only on the estate remaining at death, not on the gifts already given away, but the gifts determine whether the threshold is crossed at all. Gifts within the federal annual exclusion ($19,000 per recipient in 2026) do not count as reportable taxable gifts and do not push you toward the threshold.⁵

Rates and How the Tax Is Calculated

Illinois uses a graduated rate schedule derived from the old federal state death tax credit table. Rates start at 0.8% on the first taxable bracket above $40,000 and climb to 16% on amounts above $10,040,000.⁶ The brackets are cumulative, like federal income tax brackets, with each slice taxed at the corresponding rate:

$40,000–$90,000: 0.8%
$90,000–$140,000: 1.6%
$140,000–$240,000: 2.4%
$240,000–$440,000: 3.2%
$440,000–$640,000: 4.0%
$640,000–$840,000: 4.8%
$840,000–$1,040,000: 5.6%
$1,040,000–$1,540,000: 6.4%
$1,540,000–$2,040,000: 7.2%
$2,040,000–$2,540,000: 8.0%
$2,540,000–$3,040,000: 8.8%
$3,040,000–$3,540,000: 9.6%
$3,540,000–$4,040,000: 10.4%
$4,040,000–$5,040,000: 11.2%
$5,040,000–$6,040,000: 12.0%
$6,040,000–$7,040,000: 12.8%
$7,040,000–$8,040,000: 13.6%
$8,040,000–$9,040,000: 14.4%
$9,040,000–$10,040,000: 15.2%
Over $10,040,000: 16.0%

One important difference from the federal system: Illinois does not allow portability of the unused exclusion between spouses. At the federal level, a surviving spouse can inherit the deceased spouse’s unused exemption, effectively doubling the couple’s sheltered amount. Illinois offers no equivalent, so each spouse gets only their own $4 million threshold.¹ Planning for the first spouse’s death matters more in Illinois than in states that mirror the federal rules.

Married Couples and the Illinois QTIP Election

Because the federal exemption sits at $15 million while Illinois starts taxing at $4 million, many estates fall in a gap where no federal return is required but Illinois tax is owed. The Illinois QTIP election exists for exactly that gap. A QTIP (qualified terminable interest property) election lets the executor treat certain trust assets passing to the surviving spouse as qualifying for the marital deduction for Illinois purposes, even when no federal QTIP election was made or needed.

By making the election on Form 700, the estate deducts the QTIP amount from the Illinois taxable estate and defers the state tax until the surviving spouse dies.⁵ The QTIP amount is reported on Schedule C and reduces the tentative taxable estate on Schedule A for residents or Schedule B for non-residents. When the surviving spouse later dies, the QTIP property is included in that spouse’s Illinois gross estate under rules parallel to federal Section 2044.³ The election must be made on a timely filed return and cannot be claimed retroactively.

Deductions That Reduce the Taxable Estate

Illinois generally follows the federal deduction framework. If a deduction is allowed on federal Form 706, it typically applies for Illinois purposes too:

Debts and liabilities such as mortgages, credit card balances, and personal loans the decedent owed at death.
Reasonable funeral and burial expenses paid from the estate.
Administrative costs, including attorney fees, executor commissions, appraisal fees, and court costs.
Charitable bequests to qualifying charities, which can pull an estate below the $4 million cliff.
The marital deduction for property passing outright to a surviving spouse or through a qualifying trust. Combined with the Illinois QTIP election, this can eliminate the state tax at the first death.

Values must be documented. For real estate, the Attorney General’s office will not accept a real estate listing as sufficient proof of fair market value; a formal appraisal, comparable sales data, or another method explaining the factual basis for the assigned value is required.⁷

Life insurance is a common cause of an unexpected cliff crossing. If the decedent owned the policy at death, the full death benefit is included in the gross estate. A modest term policy can add hundreds of thousands of dollars to the taxable total on the day the insured dies.

Farm families and closely held business owners can look at the federal special-use valuation under Internal Revenue Code Section 2032A, which lets qualifying real property be valued based on its actual farm or business use rather than its highest-and-best-use market value.⁸ The maximum reduction for 2026 is $1,460,000, and Illinois recognizes the election because its gross estate definition is tied to the federal computation. Qualification depends on ownership, use, and material participation tests, and the benefit is subject to recapture if the heirs stop the qualifying use within 10 years of the decedent’s death.

Estates With Property in More Than One State

Residents who own property outside Illinois and non-residents who own property inside Illinois apportion the tax using a two-step process. First, calculate a preliminary tax as if all assets were located in Illinois. Then multiply that figure by the ratio of Illinois assets to total assets to determine the actual tax owed.¹

If a resident’s total estate is worth $6 million and $4 million of it sits in Illinois, the preliminary tax is figured on the full $6 million and then multiplied by two-thirds. Estates with less than 100% of assets in Illinois must file the Form 700 Addendum with the standard return.¹ If another state also imposes an estate tax on the same property, expect to file in both.

Filing Form 700: Deadlines and Where to File

Any estate whose gross value exceeds $4 million after adjusted taxable gifts must file Illinois Form 700, the Estate and Generation-Skipping Transfer Tax Return. Filing is mandatory even if no tax is ultimately due after deductions.⁵ The return goes to the Illinois Attorney General, not the Department of Revenue. Estates in Cook, DuPage, Lake, and McHenry counties file with the AG’s Chicago office; all other counties file with the Springfield office.⁹ Tax payments go to the Illinois State Treasurer on a separate payment form.

The return is due nine months after the date of death, matching the federal timeline.⁵ Executors who need more time can request an extension using Form 700-EXT, and a valid federal filing extension is also honored. An extension to file is not an extension to pay. Interest accrues on unpaid tax from the original nine-month due date regardless of any filing extension.

Supporting Documents

Form 700 doesn’t stand alone. If a federal Form 706 was filed, a copy must be attached. If no federal return was required, the executor must attach an itemized schedule listing every asset in the estate, wherever located, along with documentation supporting each value. Any federal extension request must accompany the Illinois return, and estates that filed a federal return with simplified reporting must submit a supplemental form listing each asset and its value.⁷

Penalties, Interest, and Disputes

Missing the filing or payment deadline triggers two separate penalty tracks under the Illinois Estate and Generation-Skipping Transfer Tax Act. The failure-to-file penalty is 5% of the tax due for each month or partial month the return is late, up to 25%.¹⁰ The failure-to-pay penalty is a separate 0.5% of the unpaid tax per month. The two can run simultaneously. Interest on unpaid tax accrues from the original nine-month due date under the Uniform Penalty and Interest Act and compounds over time, so executors should pay at least an estimated amount by the deadline even when filing under extension.

Both penalties can be waived for reasonable cause. The statute provides a shortcut: if the IRS waives a federal filing or payment penalty, that waiver automatically counts as reasonable cause for the corresponding Illinois penalty.¹⁰ Even without an IRS waiver, the Attorney General has independent authority to waive penalties on a showing of reasonable cause supported by a written explanation and documentation.

For disputes beyond penalty waivers, you can request an administrative hearing or file a petition with the Illinois Independent Tax Tribunal within 60 days of receiving a notice of your protest rights. You can also bypass the administrative process and go directly to circuit court, though that route requires payment under protest. The Board of Appeals handles penalty and interest waiver requests based on reasonable cause and offers in compromise when the full liability cannot be collected.¹¹

1
Illinois Attorney General. Important Notice Regarding Illinois Estate Tax and Fact Sheet
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Internal Revenue Service. What’s New – Estate and Gift Tax
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Illinois General Assembly. Illinois Compiled Statutes 35 ILCS 405/2
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Illinois Attorney General. Illinois Estate and Generation-Skipping Transfer Tax Return Form 700
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Illinois Attorney General. Illinois Estate and Generation-Skipping Transfer Tax Return Form 700
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Illinois Attorney General. State Death Tax Credit Table
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Illinois General Assembly. Title 86 Revenue Chapter III Attorney General Part 2000 – Illinois Estate and Generation-Skipping Transfer Tax Return
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Office of the Law Revision Counsel. 26 US Code 2032A – Valuation of Certain Farm, Etc., Real Property
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Illinois Attorney General. Illinois Estate and Generation-Skipping Transfer Tax Return Form 700 Filing Instructions
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Illinois General Assembly. Illinois Compiled Statutes 35 ILCS 405/8
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Illinois Department of Revenue. Your Options to Dispute Illinois Department of Revenue Deficiencies, Assessments, or Claim Denials