The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, permanently sets the federal estate, gift, and generation-skipping transfer tax exemption at $15 million per person, indexed for inflation, starting January 1, 2026. This eliminates the scheduled drop to roughly $7 million that was set to occur under the 2017 Tax Cuts and Jobs Act sunset provisions. While this is welcome news for families with federal estate tax exposure, Kravets Law Group, an Illinois business, real estate, and estate law firm, cautions that Illinois residents must not overlook the state's separate estate tax, which remains at $4 million and is not indexed for inflation.
Illinois is one of only twelve states (plus the District of Columbia) that imposes its own estate tax. The state's $4 million exemption is not portable between spouses, meaning that if the first spouse to pass away does not use their exemption through careful planning, it is lost. Additionally, Illinois applies a "cliff" structure: once an estate exceeds $4 million, the tax is calculated on the entire estate value, not just the amount above the exemption. This creates a significant gap for families with estates between $4 million and $15 million, where no federal estate tax is owed but substantial Illinois estate tax still applies.
"This is a significant change, and it's mostly good news for families with federal estate tax exposure," said founding attorney Daniel Kravets. "The risk we're watching is that clients hear the headline, assume the problem is solved, and forget that Illinois still has its own estate tax—one that kicks in at a much lower number and affects far more families than the federal tax ever did." For Illinois business owners, farm families, and long-term homeowners whose real estate has appreciated substantially, the gap is especially notable.
Kravets emphasizes that the permanence of the federal exemption does not eliminate the need for proactive planning. "No sunset doesn't mean no change," he said. "Any tax law can be amended down the road, and state law is its own moving target. Families who build flexibility into their plans now are in a far better position than those who assume the current rules will hold forever." Several strategies remain relevant for Illinois families navigating the state-federal gap, including charitable giving, conservation easements, and carefully structured business entities to reduce exposure.
Kravets Law Group offers complimentary consultations for individuals and families who want to review how the OBBBA estate tax changes and the current federal estate tax 2026 exemption interact with Illinois law under their specific circumstances. For more information, visit Kravets Law Group.
