Illinois married couples are at risk of a significant and often overlooked estate tax burden because the state 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. This single divergence from federal law can cost a married couple millions if they fail to plan, the firm cautions.
At the federal level, portability allows a surviving spouse to inherit and use any unused portion of their deceased spouse's estate tax exemption. For 2026, a couple with a combined federal exemption of $30 million can effectively shield the full amount even if all assets pass outright to the survivor, provided a timely estate tax return is filed after the first death. This tool is widely regarded as a cornerstone of federal estate planning. However, Illinois does not offer portability. The state's estate tax exemption is currently $4 million per person, and it is lost at the first spouse's passing unless affirmative 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 shield what is now a combined estate.
The financial consequences can be severe. Illinois 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. 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 planning can avoid entirely.
The standard solution is a properly structured credit shelter trust, often called an AB trust arrangement or bypass trust. When the first spouse passes away, a portion of their assets (up to the $4 million Illinois exemption) funds a trust for the benefit of the surviving spouse. The surviving spouse can use the trust assets during their lifetime, but those assets are not considered part of their own taxable estate when they later pass. The result is that both spouses' $4 million exemptions are preserved, shielding $8 million from Illinois estate tax rather than $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."
For readers in the legal and estate planning industry, this warning underscores a critical compliance and advisory issue: attorneys must proactively educate married clients about Illinois' lack of portability and the need for credit shelter trusts. As the federal exemption remains high, the disparity with Illinois law creates a trap for the unwary. Failure to plan can lead to substantial tax liabilities that erode family wealth, making it essential for practitioners to incorporate state-specific strategies into their estate planning practices.
