Married couples in Illinois are exposed to a significant and often overlooked estate tax risk: the state does not permit portability of the estate tax exemption between spouses. This means that when the first spouse dies, their $4 million Illinois estate tax exemption is lost unless specific planning steps were taken during their lifetime. In contrast, federal law allows portability, enabling a surviving spouse to inherit any unused federal exemption from the deceased spouse, provided a timely estate tax return is filed. For 2026, the combined federal exemption for a couple is $30 million, which can be fully shielded even if all assets pass to the survivor. However, Illinois does not offer this benefit, creating a costly gap between state and federal estate tax rules.
The financial impact can be severe. Illinois imposes a "cliff" estate tax, meaning that once an estate exceeds $4 million, the tax is calculated on the entire estate rather than just the amount above the exemption. For a couple with $8 million in combined assets who rely on outright transfers between spouses, the surviving spouse would have only their own $4 million exemption to shield the entire estate. The result could be a state estate tax bill of several hundred thousand dollars at the second death—an outcome that proper planning can avoid entirely. According to Kravets Law Group, an Illinois law firm focusing on estate planning, the solution is a properly structured credit shelter trust, also known as an AB trust or bypass trust.
Under this arrangement, when the first spouse passes away, up to $4 million of their assets—the amount of the Illinois exemption—funds a trust for the benefit of the surviving spouse. The survivor can use the trust assets during their lifetime, but those assets are not included in their own taxable estate when they later die. This preserves both spouses' $4 million exemptions, effectively shielding $8 million from Illinois estate tax instead of just $4 million. The tax savings can be substantial, but the benefits extend beyond taxes. Credit shelter trusts can also 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 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." This urgency underscores the importance of proactive estate planning for married couples in Illinois. Without it, families risk losing a significant portion of their wealth to state estate taxes that could otherwise be legally avoided.
Kravets Law Group, founded by attorney Daniel Kravets, serves clients across Illinois, Pennsylvania, and New Jersey in real estate, estate planning, and business law. The firm offers complimentary consultations for married couples seeking to review their estate plans and ensure they are positioned to preserve both spouses' Illinois exemptions. As the disparity between federal and state estate tax rules persists, Illinois couples must act deliberately to secure their financial legacy.
