The $15 Million Federal Exemption Does Not Protect Your Illinois Farm From the $4 Million State Cliff
How the Two Exemptions Work — and Why the Difference Matters for Illinois Farmland Owners
The federal estate tax exemption was made permanent at $15 million per individual, $30 million for a married couple, as part of the tax legislation that came out of Congress earlier this year. That number is large enough that the overwhelming majority of American estates — including most farm estates — fall below it and pay no federal estate tax. This is real good news for Illinois farmland owners who have been concerned about federal exposure.
What that good news does not change is the Illinois estate tax, which operates on a completely separate schedule with a completely separate exemption. Illinois exempts the first $4 million of a taxable estate. Estates above $4 million pay Illinois estate tax on the full estate — not just the amount above the exemption, but from the first dollar — at rates that start at 0.8 percent and escalate to 16 percent on the portion of the estate above $10 million. The rate schedule and the "from dollar one" structure are what make the Illinois estate tax a cliff rather than a gradual assessment.
A 400-acre Sangamon County farm at current market values of $13,000 per acre is a $5.2 million estate on the farmland alone. Add a farmstead, equipment, grain in storage, and any other assets, and a landowner in that position is looking at an estate that is $1.2 million above the Illinois exemption threshold — and will pay Illinois estate tax calculated on all $5.2 million of the farmland value, not just the $1.2 million excess. That is a meaningful tax bill that has nothing to do with federal exposure and everything to do with a state exemption that has not been adjusted for the farmland value appreciation of the past decade.
Where the Family Farm Preservation Act Stands Right Now
The Illinois General Assembly has had the Family Farm Preservation Act in various forms for several sessions. The current version would raise the Illinois estate tax exemption to $6 million — an improvement over the current $4 million threshold, but still a number that leaves a family with 500 acres of Sangamon County farmland in Illinois estate tax territory. As of September 2026, the bill has not moved out of committee and there is no timeline for a vote. Fall session begins in October, but the bill's path is unclear.
Planning on the assumption that the Family Farm Preservation Act passes — or passes in a form that helps your specific situation — is not a sound strategy in 2026. The legislation may pass, may be amended into something less helpful, or may not pass at all. The planning you do before December 31 should work under current law, with any legislative improvement representing upside rather than a requirement for the plan to function.
Three Moves a Landowner Can Make Before Year End Without Waiting on the Legislature
The first is the annual gifting program. The annual federal gift tax exclusion — currently $18,000 per recipient per year — allows a landowner to transfer value to children or grandchildren each year without reducing the lifetime exemption and without triggering gift tax. A landowner with three children can give $54,000 per year in combined gifts. A married couple can give $36,000 per child, or $108,000 combined to three children. On a farmland estate, these gifts can be structured as cash or as fractional interests in a land trust or LLC — transferring a percentage of the farmland's value each year in a form that reduces the taxable estate systematically over time. Gifts made before December 31 capture 2026 exclusion amounts. Gifts made January 1 or later are 2027 gifts. Starting this program now rather than next year is one year's worth of reduction that does not come back.
The second is entity structure. Farmland held in an LLC or a land trust, with minority interests distributed to heirs, may support valuation discounts at the time of estate tax calculation. When a minority interest in a family LLC is valued for estate tax purposes, it is typically discounted from pro-rata fair market value to reflect the lack of marketability and lack of control that a minority interest carries. These discounts — which typically run 15 to 35 percent depending on the structure and the circumstances — reduce the estate tax value of transferred interests below the proportional value of the underlying land. Entity structuring of this kind requires legal implementation and a qualified appraisal, and it needs to be in place and operating as a genuine business entity to withstand IRS scrutiny. A conversation with an estate planning attorney about whether this structure fits the family situation needs to happen in the next 60 days to be implemented before year end.
The third is the Transfer on Death Instrument on the farmstead. If the farmstead and residence are held separately from the tillable ground, a TODI recorded before death passes those assets to named beneficiaries without probate and without triggering the probate process that can complicate an estate settlement. The TODI does not reduce the Illinois estate tax liability on a large farmland estate — it addresses the probate problem, not the tax problem — but it removes the farmstead from the estate administration process in a way that simplifies the overall settlement. On a complex farm estate where the taxable value is already above the exemption regardless of what is done before year end, simplifying the probate process is a meaningful secondary goal.
The Conversation That Needs to Happen Before Harvest Is Over
Post-harvest is when the numbers for the year are clear, when the family is in the same room, and when the estate planning conversation has a natural entry point. An Illinois farmland estate that is above the $4 million threshold — which at $13,000 per acre means any farm over roughly 310 acres in Sangamon County alone — needs an estate planning attorney who understands both Illinois estate tax law and the specific mechanics of a farming operation. The federal picture has never been clearer. The Illinois picture has never been more urgent relative to current farmland values. Those two facts together make this fall the moment to have the conversation.
Jared Williams is the Managing Broker and owner of Archer Realty & Auction LLC. He serves on the Menard County Board of Review and specializes in estate real estate transitions, farmland succession, and land sale transactions across central Illinois. Start the conversation at archerrealty.net.
