Illinois married couples are exposed to a significant estate tax risk that many are unaware of: 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, potentially resulting in hundreds of thousands of dollars in unnecessary taxes. In contrast, federal law allows portability, enabling a surviving spouse to inherit any unused federal exemption from the deceased spouse. For 2026, the federal exemption is $30 million per couple, and with a timely filed estate tax return, the full amount can be shielded even if all assets pass to the survivor.
The implications for Illinois residents are severe. If a couple's entire estate passes outright to the surviving spouse, the first spouse's $4 million exemption is wasted, leaving only the survivor's $4 million to shield the combined estate. Worse, Illinois applies its estate tax as a "cliff": once an estate exceeds $4 million, the tax is calculated on the entire estate, not just the excess. For an Illinois couple with $8 million in combined assets, this could mean a state estate tax bill of several hundred thousand dollars at the second death—an outcome that proper planning can avoid entirely.
The standard solution is a credit shelter trust, also known as an AB trust or bypass trust. When the first spouse dies, assets up to the $4 million Illinois exemption are placed in a trust for the surviving spouse's benefit. The survivor can use the trust assets during their lifetime, but the assets are not included in their taxable estate at death. This preserves both spouses' exemptions, effectively shielding $8 million from Illinois estate tax instead of $4 million.
Beyond tax savings, credit shelter trusts offer other advantages: they can protect assets from creditors, preserve wealth for children from a prior marriage, and prevent assets from being redirected if the surviving spouse remarries. For blended families or situations where the surviving spouse's decision-making is a concern, these non-tax benefits can be 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, which serves clients across Illinois, Pennsylvania, and New Jersey, emphasizes that proactive planning is essential. The firm offers complimentary consultations for married couples to review their estate plans and determine whether they are positioned to preserve both spouses' Illinois exemptions. For more information, visit Kravets Law Group.
