If you've heard mixed messages about the inheritance tax in Illinois, here's the short answer: there isn't one. Illinois does not tax beneficiaries on what they inherit. The state does, however, impose a separate estate tax on larger estates, which is different from an inheritance tax.
Illinois once had an inheritance tax, but it no longer applies to recent deaths. The Illinois Attorney General notes that an "Illinois Inheritance Tax Release" is needed only if a person died before January 1, 1983—a practical marker that the old tax is a thing of the past for modern estates.
For context, some states levy inheritance taxes on beneficiaries, with rates and exemptions that vary by relationship. Illinois is not on that list. Nationally, only six states still use inheritance taxes: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. (Again, not Illinois.)
An inheritance tax bills the person receiving the property. That doesn't happen here. Instead, Illinois may tax the estate itself (via its estate tax) if its value exceeds $4,000,000, which is separate from federal rules. The state Attorney General's office administers those filings and provides worksheets and instructions.
Inheritance Tax in Illinois, in Action
- You inherit from an Illinois resident. You won't pay a tax in Illinois on what you receive. If the estate is large, any state estate tax is handled by the estate before distributions.
- You live in Illinois but inherit from a relative in another state. If that state levies an inheritance tax, you could end up paying a tax on what you inherited in that state.
- You inherit an IRA. There's no inheritance tax in Illinois, but distributions from a traditional IRA are still taxable as income under general tax rules. Different rules apply to Roth IRAs.
Many Illinois families use living trusts to avoid probate entirely, which can cost 3-7% of an estate's value and take 9 months to 14 months to complete.
(Read More: Learn about revocable trusts in Illinois versus Nevada and the cost of probate in Illinois.)