Estate Planning in Illinois: Everything You Need to Know

Estate planning is an important yet often overlooked aspect of financial planning. Many individuals assume it’s only necessary for the wealthy or elderly, but everyone—regardless of age or asset level—can benefit from a well-structured estate plan. Estate planning ensures that your assets are distributed according to your wishes and helps protect your loved ones from unnecessary legal and financial complications.

This guide will explore key aspects of estate planning, including wills, trusts, tax implications, and Illinois-specific legal considerations. By the end, you’ll have a clearer understanding of how to create a solid estate plan tailored to your needs.

1. Estate Planning Fundamentals

Defining Estate Planning

Estate planning refers to the process of organizing and arranging your assets and affairs to allow for a smooth transition upon your passing or incapacitation. It involves creating legal documents that dictate how your property, finances, and healthcare decisions should be handled.

Common Misconceptions

Many people mistakenly believe that estate planning is only necessary for the wealthy. In reality, estate planning benefits anyone who wants to protect their family and assets. Another common misconception is that young adults don’t need an estate plan. However, accidents and unexpected events can happen at any age, making early planning key to setting yourself up for success, no matter what.

Core Objectives

The primary goals of estate planning include:

• Protecting assets from excessive taxation and legal disputes.
• Ensuring the care and financial security of dependents.
• Reducing the probate process and associated costs.
• Clarifying end-of-life medical preferences.

2. Essential Estate Planning Documents in Illinois

Last Will and Testament

A will is a foundational estate planning document specifying how your assets should be distributed upon death. In Illinois, a will must be signed by the testator in the presence of at least two witnesses to be considered legally valid.

Trusts (Revocable and Irrevocable)

Trusts offer greater control over asset distribution and can help avoid probate. A revocable living trust allows modifications during the grantor’s lifetime, while an irrevocable trust provides tax benefits but cannot be altered once established.

Powers of Attorney

A Power of Attorney (POA) grants a trusted individual the authority to make financial or healthcare decisions on your behalf if you become incapacitated. In Illinois, separate documents are required for healthcare and property POAs.

Living Will or Advance Healthcare Directive

A living will include your medical treatment preferences in case you are unable to communicate. It differs from a healthcare POA, which designates an individual to make decisions on your behalf.

3. Illinois-Specific Legal and Tax Considerations

Illinois Estate Taxes

Illinois imposes an estate tax on estates exceeding $4 million, a threshold significantly lower than the federal exemption (The federal lifetime exemption amount is $13,990,000 per person in 2025). That means that for anyone who passes away with a total estate value in excess of $4M, their estate and/or beneficiaries will be assessed an additional tax for exceeding that amount. This estate tax differs from income tax, but income taxes may also apply, especially if the beneficiary inherits an IRA or annuity. Proper planning can help mitigate these taxes through trusts and gifting strategies.

Inheritance Taxes and Gift Taxes

Unlike some states, Illinois does not impose an inheritance tax. However, federal gift tax rules still apply, limiting the amount that can be given tax-free annually.

Property Ownership (Marital Property Laws)

Illinois follows equitable distribution laws rather than community property rules. Assets acquired during marriage are generally considered marital property, impacting estate planning and asset division.

Probate Process in Illinois

Probate is the legal process of administering an estate. It can be time-consuming and costly but having a trust or proper beneficiary designations can help avoid it.

4. Beneficiary Designations and Non-Probate Transfers

Retirement Accounts (401(k), IRA, etc.)

Ensuring beneficiary designations are current prevents assets from being subject to probate. The type of beneficiaries listed will dictate what options those beneficiaries have regarding withdrawing funds from those inherited IRAs. Surviving spouses have the option to continue their deceased spouse’s IRA as their own. Most other beneficiaries fall under the category of noneligible designated beneficiaries and must comply with the 10-year Rule. Aside from surviving spouses, there are a few other categories of beneficiaries who are exempt from the 10-year RMD rule. These beneficiaries are known as Eligible Designated Beneficiaries. They include:

• A child under the age of 21
• A disabled or chronically ill person
• A person who is not more than 10 years younger than the account holder

Those that are exempt from the 10-year RMD rule must comply with the rules that were in effect prior to the SECURE Act of 2019, often known as the Stretch IRA rules.

In Illinois, distributions from IRAs are not taxable at the state level, which benefits IRA beneficiaries and owners.

Life Insurance Policies

Policyholders should periodically review their primary and contingent beneficiaries to establish alignment with their estate plans. While many understand that while life insurance death benefit proceeds are income-tax-free, they are not exempt from estate taxes.

Also, it’s important to know that the amount of death benefit proceeds that are paid from a deceased’s life insurance policy will be included in the estate of the deceased. Therefore, while your total net worth may be under the $4M mark while living, the value of your estate could simultaneously be over $4M after accounting for life insurance death proceeds.

Transfer on Death (TOD) and Payable on Death (POD) Accounts

On certain non-retirement investment accounts, including brokerage accounts, checking accounts, savings accounts, and CDs, you can add Transfer on Death (TOD) or Payable on Death (POD) designations. These designations allow assets to pass directly to named beneficiaries, avoiding probate.

Once again, beneficiaries of these types of accounts will receive a step-up-in-cost-basis as of the date of death, limiting income taxes that result from the inheritance. However, these types of accounts are also countable in every estate calculation and, thus, could contribute to increased estate taxes at death if the total estate exceeds $4M in Illinois.

5. Choosing Fiduciaries and Key Decision-Makers

There are various roles throughout the estate planning process, many of which are outlined in some of the documents previously listed. It’s important to understand the proper terminology when discussing these roles, as well as the responsibilities attached to each role.

Executor (Personal Representative)

The executor is responsible for managing the estate and ensuring that the deceased’s wishes are carried out. Selecting a trustworthy and capable individual is important.

Trustee

If a trust is established, a trustee will oversee the management and distribution of trust assets according to the terms specified.

Guardian for Minor Children or Dependents

For parents, appointing a guardian establishes that minor children will be cared for in the event of their passing.

Agents Under Powers of Attorney

Careful selection of POA agents ensures responsible financial and healthcare decision-making.

6. Digital Assets and Online Accounts

In today’s digital world, many individuals own digital assets and/or maintain fully digital accounts, making it increasingly important to address both these types of assets in your estate plan and provide proper instruction for accessing digital accounts after death.

Identifying Digital Assets

Online banking, social media, and cryptocurrency accounts should be included in an estate plan to prevent complications after death.

Best Practices for Access and Management

Using a secure password manager and designating a trusted individual for digital asset access can simplify estate administration.

Legal Framework

Illinois law recognizes digital asset management and allows individuals to designate digital executors.

7. Special Estate Planning Situations

Some estate plans may call for special considerations, making the estate planning process even more helpful in these scenarios.

• Blended Families
  • Estate planning for blended families requires careful consideration to secure fair asset distribution among spouses, children, and stepchildren.

• Charitable Giving and Philanthropy
  • Setting up charitable trusts or donor-advised funds can provide tax benefits while supporting meaningful causes.

• Business Succession Planning
  • Business owners should create a succession plan to ensure a smooth transition of ownership.

• Special Needs Planning
  • A special needs trust can protect a disabled beneficiary’s eligibility for government benefits while prioritizing financial support.

8. Keeping the Estate Plan Current

As time passes and circumstances change, it may be easy for one’s estate plan to become outdated. In order to keep your estate plan current, there are a few simple steps you can take, including:

1. Regular Reviews

Estate plans should be reviewed every few years to accommodate changes in laws or personal circumstances.

2. Major Life Changes

Events such as marriage, divorce, childbirth, or significant financial changes may necessitate updates to estate documents.

3. Communicating with Loved Ones

Transparent communication with heirs and fiduciaries can prevent misunderstandings and disputes.

9. Working with Illinois Estate Planning Professionals

Building an estate plan is not something you should tackle on your own. Some cases may require the assistance of multiple professionals to make sure your estate plan is effective and complete. Your team of professionals to consult should include:

Estate Planning Attorney

An attorney ensures that documents comply with Illinois laws and that estate plans are properly executed.

Financial Advisor

A financial advisor helps integrate estate planning with investment and retirement strategies and can help assure that you have proper beneficiary designations on your investment and retirement accounts.

Tax Advisors and Accountants

Professional tax advisors can provide insights on minimizing estate taxes and maximizing deductions.

10. Practical Steps to Begin Your Illinois Estate Plan

Your team of professionals can guide step-by-step as you create and implement your estate plan. Here are a few common steps that you’ll need to complete throughout the process.

1. Audit Your Assets and Liabilities

Creating an inventory of financial accounts, properties, and debts is a big first step.

2. Define Your Estate Planning Goals

Determining asset distribution and guardianship preferences can guide decision-making.

3. Consult with Professionals

Seeking legal and financial expertise ensures a well-structured estate plan.

4. Organize and Share

Keeping estate planning documents in a secure yet accessible location and informing key individuals of their whereabouts is important.

11. We Help with Illinois Estate Planning

Estate planning is a proactive process that allows your assets and loved ones to be protected.

If you’re ready to begin your Illinois estate planning journey, we invite you to schedule a no-obligation phone call with our team.

Want more help? Let’s chat.