Illinois married couples face a significant and often overlooked estate tax risk: the state does not permit portability of the estate tax exemption between spouses, a difference from federal law that can result in tax bills of several hundred thousand dollars or more. Kravets Law Group, a Chicago-based firm specializing in business, real estate, and estate law, is calling attention to the issue and urging couples to plan while both spouses are alive.
At the federal level, portability allows a surviving spouse to inherit any unused portion of a deceased spouse's estate tax exemption. A couple with a combined federal exemption of $30 million in 2026 can shield the full amount even if all assets pass first to the survivor, provided an estate tax return is filed on time after the first death. This tool is widely regarded as one of the most valuable in federal estate planning.
Illinois, however, offers no such mechanism. The state's estate tax exemption is currently $4 million per person, and it is forfeited at the first spouse's death unless steps have been 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 shield what is now a combined estate.
The consequences are exacerbated by Illinois's estate tax structure, which applies as a "cliff." Once an estate exceeds $4 million, the tax is calculated on the entire estate rather than just the amount above the exemption. An Illinois couple with $8 million in combined assets who rely on outright transfers could owe several hundred thousand dollars in state estate tax at the second death—an outcome that proper 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 at death. This preserves both spouses' exemptions, shielding $8 million from Illinois estate tax instead of $4 million.
Credit shelter trusts also provide non-tax 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 protections are often as important as the 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 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 current estate plans and determine whether they are positioned to preserve both spouses' Illinois exemptions.
