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 measures are taken during their lifetime. For couples with substantial assets, the financial consequences can be severe, potentially resulting in hundreds of thousands of dollars in avoidable state estate taxes.
At the federal level, portability allows a surviving spouse to inherit and use any unused portion of their deceased spouse's federal estate tax exemption. With a combined federal exemption of $30 million in 2026, a couple can effectively shield that full amount even if all assets pass outright to the surviving spouse, provided a timely estate tax return is filed after the first death. This tool is widely regarded as a cornerstone of federal estate planning. However, Illinois does not follow suit. The state's estate tax exemption is currently $4 million per person, and it is forfeited at the first spouse's passing if no affirmative steps are taken to preserve it. If a married couple's entire estate passes directly to the surviving spouse, the first spouse's $4 million exemption is wasted, leaving the survivor with only their own $4 million exemption to shield what is now a combined estate.
The financial impact is compounded by Illinois' estate tax being structured as a "cliff." Once an estate exceeds $4 million, the tax is calculated on the entire estate, not just the amount above the exemption. Consequently, 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 or bypass trust. When the first spouse dies, 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 included in their own taxable estate when they later pass. This preserves both spouses' $4 million exemptions, effectively shielding $8 million from Illinois estate tax rather than $4 million.
Beyond tax savings, credit shelter trusts offer additional benefits. 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. The firm offers complimentary consultations for those seeking to understand whether their current plan adequately addresses this critical state-specific rule. Without proactive planning, the default outcome can be a substantial and unnecessary tax burden on the surviving spouse and heirs. For more information, visit Kravets Law Group.
