Illinois Estate Tax and Farmland: Why the $4 Million Exemption Catches More Farm Families Than It Should
The Gap Between the Illinois and Federal Exemption That Farm Families Frequently Underestimate
The federal estate tax exemption is currently $15 million per individual — high enough that the overwhelming majority of farm families, even those with substantial farmland holdings, will not owe federal estate tax under current law. The Illinois estate tax operates under a completely different structure. Illinois exempts only $4 million per individual from estate tax, and unlike the federal exemption, Illinois does not make that $4 million portable between spouses. A farm couple with a combined estate of $8 million — $4 million in farmland owned in each spouse's name — might expect to owe no Illinois estate tax because the assets seem to match the exemptions. But that is only true if the planning was done correctly to preserve both exemptions. Without the right structure, the first spouse to die may not be able to use their full $4 million Illinois exemption in a way that protects it from the second spouse's estate.
The rate structure on amounts above the Illinois exemption is graduated, starting at 0.8 percent on the first dollars above $4 million and rising to 16 percent on the largest estates. An estate valued at $5 million — a central Illinois farm of roughly 350 to 400 acres at current good-to-excellent per-acre values — owes roughly $285,000 in Illinois estate tax on the $1 million above the $4 million exemption. That tax is due within nine months of the date of death and must be paid in cash, which means a farm family that has most of its wealth in land and equipment may need to liquidate assets to pay it.
How Current Per-Acre Values Translate Into an Estate Tax Problem
Illinois farmland values in the central part of the state — Sangamon, Logan, Mason, Menard, and adjacent counties — are currently in a range that puts many farm families above the $4 million individual exemption without the farm being particularly large. At $13,000 per acre for good-to-excellent central Illinois ground, a landowner with 310 acres has an estate value from the farmland alone that equals the Illinois exemption. Add the farmhouse, the grain bins, the equipment, and any non-farm assets, and the total estate value above $4 million can be significant on a farm that a family would not typically describe as a large estate.
In western Illinois counties — Adams, Pike, Brown, Schuyler — where per-acre values for good agricultural ground run lower than central Illinois but recreational timber ground can carry values above its agricultural productivity, the calculation is less clear but the result can be similar. A 200-acre western Illinois tract with 120 acres of agricultural ground at $10,000 per acre and 80 acres of timber valued at $4,000 to $5,000 per acre per its recreational value produces an estate value well above $1.5 million from that single parcel. Combined with other assets, a farm family that does not consider itself wealthy in the conventional sense can easily have an Illinois estate tax exposure.
Why Planning Before the First Spouse Dies Matters Most
The Illinois estate tax planning opportunity that is most frequently missed is the one that exists before the first spouse dies — not after. The structure of the Illinois estate tax and the non-portability of the $4 million exemption means that how assets are titled at the time of the first spouse's death determines how much of both exemptions can be preserved.
A farm couple who owns all of their farmland jointly with right of survivorship — as most farm couples do without thinking about the tax consequences — has a problem at the first spouse's death. The jointly owned property passes automatically to the surviving spouse, which means the deceased spouse's $4 million Illinois exemption may not have been used to shelter any property from tax. At the second spouse's death, only one $4 million exemption is available against an estate that may have grown to include the full value of both spouses' combined assets. The Illinois tax on the amount above $4 million in that surviving-spouse estate can be substantial.
The planning that addresses this problem — credit shelter trusts, bypass trusts, and asset titling structures that preserve both exemptions — is the planning that needs to be in place before the first spouse's death, not arranged hurriedly during the estate administration after. An estate attorney who understands Illinois-specific tax planning — not just federal estate planning, because the federal and Illinois systems work differently on portability — is the starting point. October and November, as farming operations wind down for the year and year-end planning conversations begin, is the right window to have that conversation.
What Structures Can Address the Illinois Estate Tax Exposure
The credit shelter trust — sometimes called a bypass trust or a family trust — is the most commonly used structure for preserving both spouses' Illinois estate tax exemptions. At the first spouse's death, a portion of the estate equal to the $4 million Illinois exemption is placed into a trust rather than passing directly to the surviving spouse. The trust assets are available to support the surviving spouse, but they are not included in the surviving spouse's estate at their death. At the second spouse's death, the trust assets pass to the ultimate beneficiaries — the children — without being subject to Illinois estate tax a second time. The surviving spouse's $4 million Illinois exemption then shelters the remaining estate.
For a farm family, implementing this structure requires that each spouse own enough individual assets — not just jointly — to fund the credit shelter trust at the first spouse's death. A farm couple who has retitled farmland from joint tenancy into individual ownership, with each spouse holding approximately $4 million in their own name, has the foundation for this structure. A farm couple who owns everything jointly does not have that foundation and cannot easily implement the credit shelter trust without retitling first — which requires planning before a health event forces the issue.
Gifting strategies, family limited partnerships, and conservation easements are additional tools that address Illinois estate tax exposure by reducing the taxable value of the estate during the owner's lifetime rather than at death. Each has specific requirements, costs, and limitations. The Illinois estate tax planning conversation is one where the specific facts of the farm — its value, how it is titled, who the heirs are, and what their plans for the land are — determine which tools apply. A farm family that has not had this conversation with an Illinois estate attorney in the context of current land values should treat October as the opening of that 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 and farmland succession across central Illinois. Start the conversation at archerrealty.net.
