Many in Illinois assume a married couple shields double the amount from estate taxes when they die. While that’s true at the federal level, it is often not the case in Illinois.
Although there is an effort afoot to change Illinois’ estate tax law, residents currently must rely upon a comprehensive estate plan created with the help of an experienced attorney. It is the only way to avoid the gap that can cost a family’s heirs hundreds of thousands of dollars without anyone realizing a mistake was made.
How Portability Works at the Federal Level
The federal government allows portability under the following circumstance: if one spouse dies without using their full estate and gift tax exemption, the unused portion (the Deceased Spousal Unused Exclusion or DSUE) can transfer to the surviving spouse.
Note that this transfer is not automatic. The deceased spouse’s executor must promptly elect it on a Form 706 even when no federal tax is owed.
Because the federal exemption is now permanently $15 million per person as of January 2026, a couple who properly elects portability can shelter up to $30 million from federal estate tax.
Illinois Does Not Follow the Federal Rule
Illinois imposes its own, separate estate tax under the Illinois Estate and Generation Skipping Transfer Tax Act, with an exemption fixed at $4 million per person since 2013 and no inflation adjustment. Unlike the federal exemption, it is not portable between spouses.
In practice, if the first spouse to die leaves everything outright to the surviving spouse (interspousal transfers are not taxed), that spouse’s entire $4 million Illinois exemption is wasted. When the survivor later dies, only their own $4 million shields the combined estate, and if the total value of the estate exceeds $4 million, the entire estate is taxed at rates up to 16 percent.
The Fixes: A Credit Shelter (Bypass) Trust or a QTIP
There are two ways to avoid the portability conundrum:
- A credit shelter or bypass trust. Instead of passing everything outright to the surviving spouse, the first spouse’s plan directs an amount up to the Illinois exemption into an irrevocable trust for the survivor’s benefit. This trust, when properly funded, can preserve both spouses’ exemptions, effectively protecting about $8 million for a couple. The surviving spouse can typically still receive trust income while those assets fall outside their own taxable estate at death. The bypass trust generally must be built into the estate plan before the first spouse dies.
- Qualified Terminable Interest Property (QTIP) election. This is separate from the federal QTIP election. Rather than funding an irrevocable bypass trust at the first death, the executor can elect Illinios QTIP treatment for assets passing to a marital trust, deferring Illinois estate tax until the survivor’s death while still allowing both $4 million exclusions to be used. Because this election is made independently of any federal QTIP election, it gives Illinois estate planners added flexibility to structure a plan around the state’s lack of portability.
Legislative Change is Possible, But Not Yet Law
A 2026 bill, SB3787, would have amended the Act to incorporate the federal exclusion amount, including any deceased spousal unused exclusion, for deaths on or after January 1, 2027, effectively importing federal-style portability. The bill died in committee and would have to be reintroduced to become law.
What Illinois Residents Should Do
Because this exemption gap is easy to overlook and expensive to ignore, married Illinois couples whose combined estates are approaching or exceeding $4 million should review their wills and trusts with a licensed Illinois estate planning attorney from Legacy & Life Law, particularly if their plan simply leaves everything to the surviving spouse. Given how quickly home values, retirement accounts, and life insurance can push an estate over the threshold, a periodic review, not just the initial plan, is often what keeps the exemption from quietly disappearing.