Illinois married couples could face a state estate tax bill of several hundred thousand dollars due to a little-known gap between state and federal estate tax law, according to Kravets Law Group, a Chicago-based firm specializing in estate planning. The firm is highlighting that Illinois does not permit portability of the estate tax exemption between spouses, a feature that is standard at the federal level. This difference can lead to significant, unnecessary tax liabilities for families who fail to plan.
Portability, as defined under federal law, allows a surviving spouse to inherit any unused portion of a deceased spouse's estate tax exemption. For 2026, the federal exemption stands at $30 million per couple, and with a timely filed estate tax return, the full amount can be shielded even if all assets pass outright to the survivor. This tool is widely regarded as a cornerstone of modern estate planning. However, Illinois does not offer portability. The state's estate tax exemption is currently $4 million per person, and it is forfeited at the first spouse's death unless specific 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 the combined estate. The financial impact is exacerbated by Illinois' "cliff" tax structure: 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 who rely on outright transfers, the state estate tax bill at the second death could reach several hundred thousand dollars. Proper planning, however, 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, up to $4 million of their assets—the Illinois exemption amount—funds a trust for the surviving spouse. The survivor can use the trust assets during their lifetime, but those assets are not included in their own taxable estate at death. Consequently, both spouses' $4 million exemptions are preserved, shielding $8 million from Illinois estate tax instead of $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 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 serves clients across Illinois, Pennsylvania, and New Jersey in real estate, estate planning, and business law. The firm offers complimentary consultations for married couples seeking to review their estate plans and ensure they are positioned to preserve both spouses' Illinois exemptions. For more information, visit Kravets Law Group.
