The Illinois Digital Asset Transaction Tax: Why Multi-State Tax Exposure Must Now Be Part of Every Financial Projection

In July 2026, Illinois became the first state to enact a dedicated tax on cryptocurrency and other digital-asset transactions. The Illinois Digital Asset Tax Act (IDATA) imposes a 0.2% levy on the value of digital assets involved in each covered transaction. The tax is scheduled to take effect in 2027.This development is more than a narrow cryptocurrency industry story. It is a concrete reminder that state tax systems are becoming more aggressive and creative, and that citizens and their advisors can no longer assume that only their state of residence will tax their financial activity.

The Nature of the Tax

IDATA is a transaction tax, not a traditional income tax or capital-gains tax. It is calculated on the value of the digital assets involved in the transaction itself, not upon gain or appreciation.  Because it is imposed on the transaction rather than on realized gain or ordinary income, conventional tax-planning techniques that focus on character of income, holding period, or realization events offer only limited protection. That distinction matters. A pure income or capital-gains tax can often be managed through timing, entity structure, or realization planning. A transaction tax is harder to avoid once the taxable event (the transfer or trade) occurs and is deemed to have a sufficient connection to the taxing state.

Why This Matters for Broader Financial and Estate Planning

IDATA illustrates a growing reality: states are increasingly willing to tax economic activity that has only a partial or temporary connection to their borders.  The risk of unexpected state-level taxation is no longer theoretical for clients who:

• Maintain accounts or wallets with platforms that have Illinois operations or customers;
• Spend significant time in multiple states;
• Engage in frequent trading or transfers; 
• Expect to make large transactions such as lifetime gifts or estate transfers at death; and/or
• Hold digital assets inside trusts or business entities.

Citizens and planners must now routinely include the possibility of taxation by other states in financial projections. Relying solely on the tax rules of the client’s home state is incomplete. Multi-state exposure, whether from income tax, capital-gains tax, transaction taxes, or new forms of digital-asset levies, should be treated as a standard planning variable.

Here are a few estate planning scenarios in which the IDATA could produce an unexpected levy:

• Lifetime Gifts: A retired Ohio executive makes a lifetime gift of $2 million in Bitcoin to his daughter, who lives in Chicago. When he instructs his exchange to transfer the coins from his account to hers, the platform, having nexus with Illinois and treating the daughter as an Illinois customer, collects the 0.2% tax on the full value, instantly reducing the gift.

• Trust Estate Distributions: A Missouri successor trustee distributes $1.5 million in Ethereum from a decedent’s exchange account to a beneficiary who resides in Illinois; the broker’s transfer again triggers the tax, quietly siphoning the tax from the inheritance before the assets ever reach the beneficiary. 

• Probate Estate Distributions:  Probate Administrations are where this tax can be particularly pernicious.  The tax can unexpectedly affect estates in other states and jurisdictions.  It also can result in unequal or inequitable distributions.   

Unequal Distributions: A Hidden Trap in Probate

Assume an Ohio decedent dies owning $900,000 of cryptocurrency held in a custodial account at a major exchange. The probate executor opens an estate account at the same exchange and transfers the entire $900,000 from the decedent’s wallet into the newly created estate wallet. Because the transfer occurs on the platform, the exchange processes it as a broker-mediated movement.

The will directs the executor to distribute the cryptocurrency in equal one-third shares ($300,000 each) to three adult children: Beneficiary A who lives in Illinois; Beneficiary B who lives in Ohio; and Beneficiary C who lives in Florida.  When the executor instructs the exchange to send $300,000 to each beneficiary’s personal wallet:

• The transfer to Beneficiary A (Illinois resident) is treated as a covered digital-asset transfer involving an Illinois customer. The exchange collects the Illinois Digital Asset Tax before completing the movement. Beneficiary A therefore receives less than the full distribution amount;
• The transfers to Beneficiaries B and C have no Illinois customer connection, so no Illinois transaction tax is withheld. Each receives the full distribution; and
• Even if it is not readily apparent to Beneficiary A at the time of the transaction that s/he received less, it will be obvious when the Final Account reports an amount for the distribution to Beneficiary A that differs from the amount the Beneficiary actually received.  

As a result, the three beneficiaries do not receive equal net amounts even though the will called for equal distributions. The Illinois resident bears a reduction solely because of IDATA, while the non-Illinois beneficiaries receive their full shares. The executor must then decide whether to equalize the difference from other estate assets or leave the disparity in place. 

Families focused on traditional income, gift, or estate taxes may discover only after the fact that a simple electronic movement of digital assets through a broker has generated an unanticipated transaction tax.  Differing and unexpected or unanticipated outcomes often mean controversy, conflict and contests.

Digital Assets Covered by the Digital Asset Tax:  Beyond Typical Cryptocurrencies

The IDATA defines a “digital asset” as: "a digital representation of value that is used as a medium of exchange, unit of account, or store of value, and that is not fiat currency."  This definition is intentionally broader than just Bitcoin, Ethereum, and similar cryptocurrencies. Based on the statutory language and analyses of the Act, the tax can reach the following categories (when they meet the medium-of-exchange/unit-of-account/store-of-value test and are handled by a covered broker):

Covered (or potentially covered) Beyond Standard Cryptocurrencies

Category	Status	Notes
Stablecoins (USDC, USDT, etc.)	Covered	Explicitly treated as digital assets; the statute pulls in instruments designed to maintain a stable nominal value.
Governance tokens	Generally covered	Function as store of value / medium of exchange within protocols.
Altcoins and other crypto tokens	Covered	Any token used as medium of exchange, unit of account, or store of value.
Meme coins	Covered	Specifically brought back into the definition even if they lack intrinsic utility.
Tokenized traditional assets (tokenized stocks, bonds, commodities, deposits, etc.)	Potentially covered	When the token itself is used as a medium of exchange, unit of account, or store of value.
Other blockchain-based representations of value used for investment or speculation	Covered	Broad residual category.

The following are the only digital assets explicitly excluded from (IDATA):

• Loyalty, affinity, or rewards program points;
• In-game currencies or items used primarily inside games;
• Digital art, music, literary works, collectibles, and similar items that have substantial value/utility beyond being a digital asset;
• Event tickets, licenses, and similar rights;
• Prepaid card balances; and
• Pure NFTs that function mainly as digital collectibles or art (rather than as a medium of exchange or store of value).

While the tax is commonly described as a “cryptocurrency tax,” it obviously reaches a wider set of digital representations of value, especially stablecoins, governance tokens, meme coins, and many other tokens, whenever they are exchanged, transferred, or stored by a digital asset broker on behalf of an Illinois customer. Pure digital collectibles and in-game items are generally outside its scope.

Although IDATA contains exclusions for certain digital items that are not marketed for investment or speculation, it expressly carves stablecoins back in. IDATA covers any digital representation of value that is “marketed, used, promoted, offered, or sold in a manner that intends to establish a reasonable expectation or belief among the general public that the instrument will retain a nominal value that is so stable as to render the nominal value effectively fixed.” This language was written intending to capture stablecoins (USDC, USDT, DAI, and similar instruments pegged to the dollar or another reference asset).

Moreover, because stablecoins are designed to maintain a stable value, the tax is especially noticeable: the levy is imposed on the full face value even though the holder has little or no price appreciation. Stablecoins are treated the same as other covered digital assets: any exchange, transfer, or custodial storage of stablecoins by a digital asset broker on behalf of an Illinois customer can generate the transaction tax.

Planning Strategies

Although IDATA is structured as a transaction tax, several approaches may still limit its impact or the impact of similar future taxes:

• Entity and Ownership Structure:
  Holding digital assets through carefully designed entities or trusts may affect how (or whether) a state asserts taxing jurisdiction. The analysis is fact-specific and must consider both the state’s nexus rules and the client’s overall estate plan.

• Residency and Domicile Planning:
  Clear documentation of domicile and the limitation of days spent in high-tax or aggressive-tax states remains foundational. While a transaction tax can reach non-residents, strong residency evidence still helps in disputes over sourcing and nexus.

• Platform and Counterparty Selection:
  The identity and location of the exchange, broker, or counterparty can influence whether a state claims the transaction has a taxable connection. Clients and advisors should evaluate where platforms are based and how they report activity.

• Timing and Frequency of Transactions:
  Because the tax is imposed on each covered transaction, reducing unnecessary transfers or consolidating activity may lower the cumulative burden. High-frequency trading is particularly exposed.

• Monitoring Legislative and Constitutional Challenges:
  IDATA is already facing criticism and a proposed repeal bill. Similar future taxes may be challenged under the Commerce Clause, Due Process Clause, or other constitutional theories. Clients should stay informed and be prepared to adjust.

• Integration with Overall Tax Projections:   
  Financial models, retirement projections, and estate-tax estimates should now include sensitivity analyses for potential multi-state taxation of investment activity—not only for digital assets, but for other mobile forms of wealth as states continue to innovate.

Beginning of a Trend?

IDATA is the first of its kind, but it is unlikely to be the last. It signals that states are looking for new ways to tax financial activity that crosses borders. For individuals and families engaged in serious planning, the practical lesson is straightforward: possible taxation by other states must be included in financial projections. A transaction-based tax is more difficult to plan around than a conventional income or capital-gains tax, which makes early awareness and structural planning all the more important. Clients who treat multi-state tax risk as an afterthought may discover that the cost of a single state’s policy choice is far higher than expected.

If you or your clients hold cryptocurrency, stablecoins, or other digital assets, do not wait for the first unexpected levy to appear. Review where those assets are held, how they will move at death or during lifetime gifting, and whether any beneficiary or platform connection could create Illinois tax exposure. A short conversation with your estate planning attorney now can prevent unequal distributions, family conflict, and avoidable costs later. The Illinois Digital Asset Tax is already law; planning around it should begin before it takes effect.

Washington State May Be First Sate With Payroll-Funded Long Term Care Insurance Benefit.

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Numerous states are considering proposals to create a long-term care insurance programs, many funded by a payroll tax. Washington may be the first to actually enact a plan. Both the Washington State House and Senate have passed legislation, so all that’s required is a House re-vote on a Senate package that differs slightly from the House version. 

The Senate tweaked a few aspects of a proposal passed earlier by the House, so approval appears all but assured. The governor, provider associations and many others have  supported the measure, which would cap the lifetime benefit maximum at $36,500 per person. The governor has promised to sign the bill when presented. 

MyNorthwest reported in an article the sponsor's statements supporting the legislation:

"Democratic State Rep. Laurie Jinkins has introduced the Long Term Care Trust Act, which she says would work similarly to unemployment.  'What we do is create, essentially an insurance program where folks pay a premium of 0.58 of a percent, so 58 cents of every hundred dollars they earn would go into the trust. In return, any time they needed long-term care they’d be able to draw on that,' Jinkins explained. 

Workers of all ages would pay into the program, at a cost of around $24 a month for someone earning $50,000 a year.

That creates a benefit of roughly $37,000 over a person’s lifetime they could take in units of $100.

“That amount of money, for example, would pay for 25 hours a week of in-home care over the course of a year, respite care for one of your family members who was getting care; it would pay for that for maybe five years. So, it’s a pretty significant benefit for people,” Jinkins said.

Providers could start collecting payment from the program beginning in January 2025. The measure covers traditional long-term care services for people needing help with at least three activities of daily living (ADLs), as well as things like in-home care and meal delivery, rides to the doctor, home modifications such as wheelchair ramps, and reimbursements to unpaid family caregivers.  Washington defines more broadly ADLs than does private insurance, which usually triggers benefits when someone requires help with two ADLs. The state would reimburse providers directly. Family caregivers could be paid, though they first would have to go through a training program. 

Premiums of 0.58% of wages would begin being withheld from employees’ checks starting in 2022. Someone earning $50,000 per year would pay a premium of about $24 per month, or $288 per year. Under the Senate version, individuals holding long-term care insurance policies would be exempt.

A participant must work and pay the premium/payroll tax for at least 10 years, with at least five uninterrupted, or three of the last six years. Thus, most current retirees would be ineligible for the program.  

Provider and consumer groups testified in favor of The Long Term Care Trust Act, and nobody testified against it, at a House Health & Wellness Committee hearing in January. Experts say 60 percent of us will need long-term care or support of some sort after we hit 65.

In a House committee hearing,  Dan Murphy, executive director of the Northwest Regional Council explained who the insurance would benefit:

“People need long-term care when they can no longer do basic things themselves. Things like bathing, dressing, getting out of a chair, a bed getting into a car, managing their medications or just even standing, walking around. That’s what we’re really talking about in the assistance lift, when folks can’t any longer do things for themselves.”

An outside study authorized by the Legislature back in 2015 found there is a significant need, with seven of 10 people over 65 years old expected to need this type of care.

Of course the program also benefits the State of Washington.  An outside study found the program would lead to big savings for Medicaid over time, close to $900 million in the 2051-53 biennium.

According to an article in Forbes, although Washington is the first state in the US to enact a public long-term care insurance program other states are considering similar legislation.  "Hawaii has provided a public cash benefit for family caregivers of frail older adults, though it is not really an insurance program. California is considering a ballot initiative on a public long-term care financing program, Michigan and Illinois are studying public programs for those not on Medicaid, and Minnesota has proposed two alternative private financing options for long-term care."  Forbes notes,  though, that the "idea is not universally popular, however. Last year, Maine voters rejected a public plan to help fund home care."

According to Forbes, Washington State is choosing a "front-end insurance model that could begin to cover benefits as soon as participants have a need. It would cover the most people, though its benefit would pay only a small fraction of the costs for someone who needs several years of care."  An alternative model, "called a catastrophic or back-end design, would require participants to pay for the first years of care, but provide lifetime coverage after that.  It would cover fewer people than a front-end plan but would focus on those with the greatest need."

The Forbes article concludes that "[t]he Washington State model would be an important experiment, and it could create momentum for other states to adopt long-term care insurance programs."

Illinois Permits Guardian Authority to Petition for Termination of a Ward's Marriage

The Illinois Supreme Court overturned the 26-year-old opinion In re Marriage of Drews, 503 N.E.2d 339 (1986), ruling that a guardian has the legal authority to petition for dissolution of a ward's marriage, and may take appropriate legal action to accomplish that end. Karbin v. Karbin, 2012 IL 12815 (Ill. 2012). 

In 1986, the Supreme Court had held that a guardian did not have standing to initiate a dissolution of marriage action on behalf of a ward. The court found that the Probate Act, which allows a guardian of the estate to appear and represent a ward in legal proceedings, was limited to matters directly involving the ward’s estate and that there was no comparable language which governs rights and responsibilities over the ward’s person. In making this decision, the court said that it was following a strong majority rule across the country. In re Marriage of Drews, 503 N.E.2d 339, 340 (1986).

The decision was short and concise. Justice Seymour Simon dissented, arguing that the court’s holding was too restrictive. “If the initiation of a legal proceeding though personal can be shown to be beneficial to the maintenance and welfare of the ward, the court ought to allow it.” In re Marriage of Drews, 503 N.E.2d 339 342 (1986).

Karbin v. Karbin involved a contentious divorce case that, while initiated by the competent husband, was being pursued by the incompetent wife’s guardian after the husband voluntarily dismissed his petition. The husband moved to dismiss the counterpetition filed by the guardian, citing Drews. The trial court dismissed the case and the Appellate Court affirmed. As its first order of business, the court justified its decision to overturn Drews, finding that the court had shifted away from Drews. Karbin v. Karbin, 2012 IL 12815 at 6 (Ill. 2012).

In fact, the limitation on the guardian’s authority ordered in Drews was abandoned only three years later in Estate of Longeway, when the Supreme Court held that a guardian has implied authority to act in the ward’s best interests regarding the use of life-sustaining measures. Estate of Longeway, 549 N.E.2d 292 (1989). Later that year, the Supreme Court reaffirmed that expansion of authority by holding that a guardian may decide to remove life support. Estate of Greenspan, 558 N.E.2d 1194 (1980).

After justifying its decision to overturn Drews, the Karbin Court pointed out that the divorce in Drews had been filed prior to the adoption of no-fault grounds in Illinois. At that time, divorce involved one guilty party and one injured party and it was the sole choice of the injured party to severe the marriage. This was considered a uniquely personal decision to which no one else was privy. Once the concept of injury was removed from divorce, the decision to end a marriage would be no more personal than the decision to end life support, have an abortion or undergo involuntary sterilization. In fact, the court noted, divorce was not as final or permanent as those decisions were. Karbin v. Karbin, 2012 IL 12815 at 11 (Ill. 2012).

There was simply no reason why a guardian should not be allowed to make the personal decision to file for divorce using the substituted judgment standard permitted by the Probate Act. “As is apparent, the traditional rule espoused in Drews is no longer consistent with current Illinois policy on divorce as reflected in the Illinois Marriage and Dissolution of Marriage Act.” Karbin v. Karbin, 2012 IL 12815 at 11 (Ill. 2012).

Finally, this court found that continued application of the holding in Drews could put an incompetent spouse at the mercy of an ill-intentioned competent spouse. “Because under the Probate Act the guardian must always act in the best interests of the ward, when a guardian decides that those best interests require that the marriage be dissolved, the guardian must have the power to take appropriate legal action to accomplish that end.” Karbin v. Karbin, 2012 IL 12815 at 12 (Ill. 2012).

The Court summed up its discussion succinctly: “[t]his ensures that the most vulnerable members of our society are afforded fundamental fairness, equal protection of the laws and equal access to the courts. Therefore, In re Marriage of Drews is hereby overruled.” Karbin v. Karbin, 2012 IL 12815 at 14 (Ill. 2012).

Upon remand, the court directed the Circuit Court to hold a hearing in order to determine if divorce is in the ward’s best interests, clarifying that the guardian always acts as the hand of the court and subject to the court’s direction. In order to prevent a guardian from pursing a divorce for his or her own purposes, the guardian must satisfy a clear and convincing burden of proof that the divorce is in the ward’s best interests. This higher burden is in accordance with the standard applied to other highly personal issues. Karbin v. Karbin, 2012 IL 12815 at 15 (Ill. 2012).

While most probate and domestic relations practitioners agree that the decision to overturn Drews was long overdue, on the grounds that a guardian who has standing to petition the court to withdraw life support from a ward, should likewise have authority to dissolve a marriage, both decisions being personal to the ward, others are more apprehensive because a guardian can remove an advocate spouse when the spouse is properly recalcitrant or vocally objects to decisions of an abusive guardian.  

Those supporting a guardian's authority rely upon the Probate Court to decide whether pursuing a divorce is clearly and convincingly in the ward’s best interests.