Married couples in Illinois are being urged to review their estate plans because of a critical mismatch between federal and state tax law that can silently wipe out one spouse's $4 million Illinois estate tax exemption. The warning comes from Kravets Law Group, an Illinois business, real estate, and estate law firm.
Under federal law, each person can pass $15 million free of federal estate tax in 2026, and spouses can combine unused amounts through portability. Illinois, however, applies its own estate tax to estates above $4 million and does not recognize portability. That means an exemption left unused at the first death is permanently lost, even if no federal tax would be due.
The implications are significant for families with assets that may not feel wealthy on paper. A couple with an $8 million estate who leave everything outright to the survivor will waste the first spouse's $4 million exemption, leaving the survivor's estate far above the Illinois threshold. The result can be a state estate tax bill that heirs must pay, reducing what passes to the next generation.
"Many couples assume the federal rules carry over to Illinois, and that assumption is where the problem starts," said founding attorney Daniel Kravets. "A home, retirement accounts, and a business interest can add up to more than $4 million faster than most families expect. Married couples estate tax planning has to address the state tax directly."
An AB trust, also called a credit shelter or bypass trust, offers a solution by dividing assets at the first death. Assets up to the first spouse's exemption fund a trust for the survivor's benefit, and those assets are excluded from the survivor's estate. The remaining assets pass to the survivor, allowing both exemptions to be used and as much as $8 million to reach heirs free of Illinois estate tax. The catch is that an AB trust in Illinois must be established before the first spouse dies, so delay can eliminate the benefit.
"An AB trust is not right for every couple, but for those near or above the threshold, it is often the most direct way to use both exemptions," Kravets added.
The firm's alert underscores a broader planning gap: federal tax law often dominates headlines, but state-level rules can create separate liabilities that families overlook. For Illinois couples, the absence of portability means that failing to plan could cost heirs millions, making a review of existing wills and trusts a priority.
