Married couples in Illinois could face a state estate tax bill of several hundred thousand dollars because Illinois does not permit portability of the estate tax exemption between spouses, according to Kravets Law Group, an Illinois business, real estate, and estate law firm. The firm is warning that this gap between federal and state law can be costly if couples fail to plan.
At the federal level, portability allows a surviving spouse to inherit any unused portion of a deceased spouse's estate tax exemption. For 2026, a couple with a combined federal exemption of $30 million can shield the full amount even if all assets pass to the survivor, provided an estate tax return is filed on time after the first death. However, Illinois does not offer portability. The state's estate tax exemption is currently $4 million per person and is lost at the first spouse's death unless steps are taken during life to preserve it.
If a married couple's entire estate passes outright to the surviving spouse, the first spouse's $4 million exemption is wasted, leaving the survivor with only their own $4 million exemption to cover a combined estate. Illinois also applies its estate tax as a "cliff," meaning that once an estate exceeds $4 million, the tax is calculated on the entire estate rather than just the amount above the exemption. As a result, an Illinois couple with $8 million in combined assets who rely on outright transfers could face a state estate tax bill of several hundred thousand dollars at the second death.
The standard solution is a properly structured credit shelter trust, often called an AB trust or bypass trust. When the first spouse passes away, up to $4 million in assets funds a trust for the surviving spouse. The survivor can use the assets during their lifetime, but they are not included in the survivor's taxable estate. This preserves both spouses' $4 million exemptions, shielding $8 million from Illinois estate tax instead of $4 million.
Credit shelter trusts also offer non-tax benefits, such as protection from future creditors, preservation of wealth for children from a prior marriage, and prevention of asset redirection if the surviving spouse remarries. For blended families or those concerned about a surviving spouse's long-term decision-making, these protections can be as important as tax savings.
"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, founded by Daniel Kravets, serves clients across Illinois, Pennsylvania, and New Jersey in real estate and property law, estate planning, and business and corporate law. The firm offers complimentary consultations for married couples who want to review their estate plans and determine whether they are positioned to preserve both spouses' Illinois exemptions. For more information, visit https://www.kravetslawgroup.com.
