Illinois married couples are exposed to a significant estate tax risk that many overlook: the state does not permit portability of the estate tax exemption between spouses. This stands in stark contrast to federal law, where portability allows a surviving spouse to inherit any unused federal estate tax exemption from a deceased spouse. For 2026, the federal exemption is $30 million per couple, meaning a married couple can shield that full amount even if all assets pass outright to the survivor, provided a timely estate tax return is filed after the first death. Illinois, however, offers no such mechanism. Its estate tax exemption is $4 million per person and is lost at the first spouse's death unless specific steps are taken during life to preserve it.
The implications are severe. If a married couple's entire estate passes outright to the surviving spouse, the first spouse's $4 million Illinois exemption is wasted. The survivor is left with only their own $4 million exemption to shield what is now a 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 over the exemption. As a result, 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—an outcome that proper Illinois estate tax portability planning can avoid 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 surviving spouse's benefit. The survivor can use the trust assets during their lifetime, but those assets are not included in their taxable estate when they later pass. This preserves both spouses' $4 million exemptions, effectively shielding $8 million from Illinois estate tax instead of $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 proactive planning is critical. The firm offers complimentary consultations for married couples to review their estate plans and ensure they are positioned to preserve both spouses' Illinois exemptions. Without such planning, families risk losing a substantial portion of their wealth to state estate taxes that could have been legally avoided.
