Married couples in Illinois are confronting a significant and often overlooked estate tax disparity that can cost their families hundreds of thousands of dollars. Unlike federal law, Illinois does not permit portability of the estate tax exemption between spouses—a difference that can have severe financial consequences for those who fail to plan. The federal government allows a surviving spouse to inherit any unused portion of a deceased spouse's estate tax exemption, provided a timely estate tax return is filed. In 2026, with a combined federal exemption of $30 million, a couple can shield that entire amount from federal estate taxes even if all assets pass outright to the survivor. However, Illinois offers no such mechanism. The state's estate tax exemption is $4 million per person, and it is lost at the first spouse's death 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 cover what is now a combined estate.
The financial implications are stark. Illinois applies its estate tax as a "cliff," meaning 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. This outcome is entirely avoidable with proper planning. 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 survivor 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, effectively 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."
