Illinois married couples could face a state estate tax bill of several hundred thousand dollars due to a critical difference between state and federal estate tax law: Illinois does not allow portability of the estate tax exemption between spouses. This gap, often overlooked in estate planning, can result in the loss of one spouse's $4 million exemption, leaving the survivor with only their own exemption to shield a combined estate.
At the federal level, portability allows a surviving spouse to inherit and use any unused portion of their deceased spouse's estate tax exemption. For 2026, with a combined federal exemption of $30 million, a couple can effectively shield the full amount even if all assets pass to the surviving spouse, provided a timely estate tax return is filed. This tool is widely considered essential in federal estate planning. However, Illinois does not offer portability. The state's estate tax exemption is $4 million per person, and it is lost at the first spouse's death unless affirmative steps are taken during life to preserve it. If a married couple's entire estate passes outright to the surviving spouse, the first spouse's $4 million exemption is wasted, and the survivor is left with only their own $4 million exemption to shield what is now a combined estate.
The financial consequences can be severe. Illinois applies its estate tax as a "cliff," meaning once an estate exceeds $4 million, the tax is calculated on the entire estate rather than just the amount above the exemption. An Illinois couple with $8 million in combined assets who rely on outright transfers between spouses could face a state estate tax bill of several hundred thousand dollars at the second death. Proper planning can avoid this outcome entirely.
The standard solution is a properly structured credit shelter trust, often called an AB trust arrangement or bypass trust. When the first spouse passes away, a portion of their assets (up to the $4 million Illinois exemption) funds a trust for the benefit of the surviving spouse. The surviving spouse can use the trust assets during their lifetime, but those assets are not considered part of their own taxable estate when they later pass. The result is that both spouses' $4 million exemptions are preserved, shielding $8 million from Illinois estate tax rather than $4 million.
Credit shelter trusts offer benefits beyond tax savings. They can protect assets from future creditors, preserve wealth for children from a prior marriage, and prevent assets from being redirected if the surviving spouse remarries. For families with children from multiple marriages, blended family dynamics, or concerns about a surviving spouse's long-term decision-making, these non-tax protections are often as important as the tax planning itself.
"There's a clear and well-established way to plan around this gap in state and federal law," said founding attorney Daniel Kravets. "The catch is that the planning has to happen while both spouses are alive and able to sign documents. Once the first spouse passes away, the available planning options start to narrow."
Kravets Law Group, a Chicago-based firm serving clients across Illinois, Pennsylvania, and New Jersey, emphasizes that married couples should review their estate plans to ensure they are positioned to preserve both spouses' Illinois exemptions. Without such planning, families risk losing a significant portion of their wealth to state estate taxes.
