How the Big Beautiful Bill Impacts Illinois Estate Tax Planning—And Why QTIP Trusts Matter More Than Ever

On July 4, 2025, the U.S. Government enacted a major tax reform package nicknamed the “Big Beautiful Bill”, and one of its biggest headlines was the increase in the federal estate tax exemption. While the Big Beautiful Bill estate tax changes offer expanded opportunities to pass on wealth free from federal estate tax, Illinois families should not be lulled into a false sense of security: the Illinois estate tax still kicks in at a much lower threshold—just $4 million per person.

This disconnect between federal and state estate tax exemptions makes Illinois estate tax planning more critical than ever, especially as families navigate the Big Beautiful Bill estate tax implications and utilize advanced tools like QTIP trusts.

Big Beautiful Bill Estate Tax Changes: What the 2025 Updates Mean

Under the Big Beautiful Bill estate tax provisions:

• Currently in 2025, the federal exemption remains $13.99 million per person, or $27.98 million per married couple
• In 2026, the Big Beautiful Bill increases the exemption to $15 million per person, or $30 million per couple, adjusted annually for inflation
• The top federal estate tax rate remains at 40%

For most families, this means they will not owe federal estate tax, but that doesn’t mean they’re in the clear—especially for Illinois estate tax planning purposes.

Illinois Estate Tax: The $4 Million Reality for Illinois Families

Illinois continues to tax estates that exceed $4 million, with a graduated rate up to 16%. Unlike the federal system, Illinois does not allow portability, meaning a surviving spouse cannot automatically use their partner’s unused exemption.

So while your estate might escape federal tax, your heirs could still face a significant Illinois estate tax bill—unless you plan ahead.

Real-World Illinois Estate Tax Planning Example

Meet John and Susan, a married couple in Naperville, Illinois. Together, they own:

• A home valued at $1.5 million
• Retirement accounts totaling $2.5 million
• A life insurance policy with a $1 million death benefit
• Investments worth $3 million

Their combined estate is approximately $8 million—well below the federal threshold but double the Illinois estate tax exemption.

Without Proper Illinois Estate Tax Planning:

• When John dies, he leaves everything to Susan outright
• Because of the marital deduction, no estate tax is due at that time
• But when Susan passes away, the full $8 million is now in her name—and Illinois only allows a $4 million exemption
• Result: The estate could owe Illinois estate tax on $4 million, potentially over $400,000

With a QTIP Trust Illinois Strategy:

• When John dies, $4 million is placed into a QTIP trust for Susan’s benefit
• This QTIP trust Illinois structure preserves John’s Illinois exemption, even though it defers tax until Susan’s death
• At Susan’s death, only $4 million is subject to Illinois estate tax—cutting the taxable estate in half

Result: The family could save hundreds of thousands of dollars in state estate taxes, simply by using a QTIP trust Illinois planning strategy.

Why QTIP Trust Illinois Planning Is Essential

QTIP trusts are especially valuable in Illinois estate tax planning because:

• Maximize exemptions: They allow married couples to fully use both spouses’ $4 million Illinois exemptions
• Tax deferral: They delay taxes until the second death, providing potential growth benefits
• Control preservation: They provide control over who inherits, which is especially important in blended families
• Flexibility: The surviving spouse receives income and can access principal for health, education, maintenance, and support

Understanding QTIP Trust Benefits for Illinois Residents

A QTIP (Qualified Terminable Interest Property) trust offers Illinois families several advantages:

For the First Spouse to Die:

• Ensures their Illinois estate tax exemption isn’t wasted
• Maintains control over ultimate beneficiaries
• Qualifies for the unlimited marital deduction

For the Surviving Spouse:

• Provides lifetime income from trust assets
• Allows access to principal when needed
• Maintains comfortable lifestyle

For the Family:

• Potentially saves hundreds of thousands in Illinois estate taxes
• Preserves more wealth for future generations
• Provides certainty and structure

Don’t Let Illinois Take a Bigger Share Despite Big Beautiful Bill Benefits

The Big Beautiful Bill estate tax increases are great news for most American families—but Illinois hasn’t followed suit. The gap between federal Big Beautiful Bill provisions and state estate tax exemptions creates both opportunities and traps for Illinois families.

Without proper Illinois estate tax planning, your family could face avoidable estate taxes that could have been eliminated with strategies like QTIP trusts. A well-drafted estate plan that accounts for both federal and Illinois tax laws can protect your assets and ensure your wishes are honored.

Take Action on Your Illinois Estate Tax Planning

Don’t wait until it’s too late to protect your family from unnecessary Illinois estate taxes. The Big Beautiful Bill estate tax changes highlight the importance of state-specific planning strategies that account for both federal benefits and ongoing state tax obligations.

At Long Law Group, we specialize in Illinois estate tax planning and understand the nuances of both the Big Beautiful Bill provisions and state tax laws. Our experienced Chicago and Naperville estate planning attorneys can help you implement sophisticated strategies like QTIP trusts to minimize your family’s tax burden while maximizing the benefits of recent federal changes.

Ready to explore your Illinois estate tax planning options? Contact us today at 312-344-3644 or Contact@JLongLaw.com to schedule a consultation and build an estate plan that works for your family and Illinois tax laws.