Illinois Couples Face Estate Tax Gap as Portability Disparity Persists

Married couples in Illinois are confronting a costly discrepancy between state and federal estate tax laws that can significantly reduce the wealth passed to heirs. Unlike the federal system, Illinois does not permit portability of the estate tax exemption between spouses. This means that when one spouse dies, any unused portion of their $4 million Illinois exemption is lost unless specific planning measures are taken during their lifetime. The federal government, by contrast, allows a surviving spouse to inherit and use the deceased spouse's unused exemption, effectively shielding up to $30 million for a couple in 2026, provided a timely estate tax return is filed. This fundamental difference creates a trap for the unprepared, potentially costing families millions.

The financial stakes are stark. If a 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 is now a combined estate. Worse, 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. For an Illinois couple with $8 million in combined assets who rely on outright transfers, this could result in 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 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. This preserves both spouses' $4 million exemptions, shielding $8 million from Illinois estate tax rather than $4 million. Beyond tax savings, these trusts offer additional protections: they can shield 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 or concerns about a surviving spouse's long-term decision-making, these non-tax benefits 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, a Chicago-based firm serving clients across Illinois, Pennsylvania, and New Jersey, emphasizes that proactive estate planning is essential. 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. As tax laws evolve, couples must stay informed to avoid unnecessary tax burdens. For more information on estate planning, visit Kravets Law Group.