Many married couples assume that estate tax planning only matters for ultra-high-net-worth families. In Illinois, however, estate tax planning becomes relevant much sooner than many people realize.

While the federal estate tax exemption currently $15,000,000 per person, Illinois has its own separate estate tax system with a significantly lower exemption.

Understanding how the Illinois estate tax works—and how married couples should structure their assets—can help families avoid unnecessary tax exposure.

Illinois Estate Tax Basics

Illinois currently provides an estate tax exemption of $4,000,000 per person.

However, Illinois differs from the federal system in two key ways: No portability between spouses. Unlike federal estate tax law, Illinois does not allow a surviving spouse to inherit a deceased spouse’s unused exemption. Illinois uses a “cliff” tax structure. Once a taxable estate exceeds $4,000,000, the entire estate becomes subject to Illinois estate tax, not just the amount above the exemption.

Because of these differences, planning strategies that work for federal estate tax purposes may not be sufficient for Illinois estate tax planning.

A Common Problem: Uneven Asset Ownership Between Spouses

One of the most common issues we encounter involves uneven asset titling between spouses. Consider the following example:

A married couple has a combined net worth of $11,000,000, but their assets are titled unevenly:

• Husband: $10,000,000
• Wife: $1,000,000

If the wife passes away first, her estate is valued at $1,000,000. Although Illinois provides a $4,000,000 exemption, only $1,000,000 of that exemption is used. This leaves $3,000,000 of exemption unused. Because Illinois does not allow portability, the unused exemption is permanently lost.

The Long-Term Tax Impact

When the surviving spouse later passes away, the couple has effectively lost $3,000,000 of available Illinois estate tax exemption. Assuming an approximate Illinois estate tax rate of 16%, this could result in:

$3,000,000 × 16% = $480,000

In other words, the couple’s estate may pay approximately $480,000 more in Illinois estate taxes simply because the first spouse’s exemption was not fully utilized. Importantly, this tax is not paid at the first death - but the lost exemption ultimately affects the estate when the surviving spouse later dies.

Planning Strategies to Avoid This Issue

Fortunately, this problem is usually relatively easy to address with proper planning. Common solutions include:

• Equalizing asset ownership between spouses
• Strategic asset titling
• Creating credit shelter (bypass) trusts
• Implementing revocable trust structures designed to utilize both Illinois exemptions

The goal is to ensure that each spouse can fully utilize their $4,000,000 Illinois estate tax exemption. For couples with estates exceeding $4,000,000, thoughtful planning can potentially save hundreds of thousands of dollars in Illinois estate taxes.

The Bottom Line

Illinois estate tax planning often centers on one simple concept: Make sure both spouses use their exemptions.

Without proper planning, families can unintentionally lose significant tax savings. However, with thoughtful asset structuring and trust planning, married couples can often minimize or eliminate unnecessary Illinois estate tax exposure.