Illinois married couples are exposed to a significant and often overlooked estate tax risk: the state does not permit portability of the estate tax exemption between spouses. This single divergence from federal law can result in a state estate tax bill of several hundred thousand dollars for a couple with $8 million in combined assets, according to Kravets Law Group, an Illinois firm specializing in business, real estate, and estate law.
At the federal level, portability allows a surviving spouse to inherit and use any unused portion of a deceased spouse's estate tax exemption. With a combined federal exemption of $30 million in 2026, a couple can effectively shield the full amount even if all assets pass to the survivor first, provided an estate tax return is filed on time after the first death. This is widely regarded as a cornerstone of federal estate planning.
Illinois, however, offers no such mechanism. The state's estate tax exemption is $4 million per person, and it is forfeited at the first spouse's death unless affirmative steps are taken during life. If a married couple's entire estate passes outright to the surviving spouse, the first spouse's $4 million exemption is wasted. The survivor is then left with only their own $4 million exemption to shield what has become a combined estate.
The financial impact is exacerbated by Illinois's "cliff" estate tax, which calculates tax on the entire estate once it exceeds $4 million, rather than only on the amount above the exemption. 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—an outcome that proper planning can avoid entirely.
The standard solution is a properly structured credit shelter trust, also known as 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 own taxable estate when they later pass. This preserves both spouses' $4 million exemptions, 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, based in Chicago, serves clients across Illinois, Pennsylvania, and New Jersey. The firm was founded by attorney Daniel Kravets, who was raised outside Philadelphia by a Russian immigrant family and built his practice around the belief that legal representation should feel like a partnership, not a transaction. The firm offers complimentary consultations for married couples who want to review their current estate plans and understand whether they are positioned to preserve both spouses' Illinois exemptions.
