Kravets Law Group, an Illinois business, real estate, and estate law firm, is warning married couples about a critical difference between Illinois and federal estate tax law that can cost heirs millions. While the federal government allows portability of the estate tax exemption between spouses—meaning a surviving spouse can inherit any unused exemption from the deceased spouse—Illinois does not. This gap, if unaddressed, can result in substantial state estate tax liabilities at the second death.
Under federal law, a couple with a combined exemption of $30 million in 2026 can shield the full amount even if all assets pass outright to the surviving spouse, provided a timely estate tax return is filed after the first death. Portability is widely regarded as a cornerstone of modern federal estate planning. However, Illinois offers no such option. The state's estate tax exemption is currently $4 million per person, and it is lost at the first spouse's passing unless specific steps are taken during life to preserve it. If a married couple's entire estate passes directly to the survivor, 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 impact 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. According to Kravets Law Group, 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. Proper planning, however, can avoid this outcome 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. As a result, both spouses' $4 million exemptions are preserved, shielding $8 million from Illinois estate tax instead of $4 million.
Beyond tax savings, credit shelter trusts offer additional 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 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 is a Chicago-based law firm serving clients across Illinois, Pennsylvania, and New Jersey in real estate and property law, estate planning, and business and corporate law. The firm was founded by attorney Daniel Kravets and 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. For more information, visit https://www.kravetslawgroup.com.
