Using an ABC Trust for Illinois Estate Tax Planning
Illinois is a “decoupled” state: it taxes estates under its own rules, with its own $4 million exemption, separate from the federal estate tax. Since the federal exemption rose to $15 million per person in 2026, most married couples in Orland Park and the southwest suburbs will never owe a dollar of federal estate tax — but plenty of them still owe Illinois estate tax, simply because no one built a plan around the gap between the two systems. An ABC trust is the tool that closes that gap.
Why Decoupling Creates a Trap
Illinois's $4 million exemption is not indexed for inflation, and — unlike the federal exemption — it is not portable between spouses. If the first spouse to die leaves everything outright, or in a simple marital trust, to the survivor, that spouse's $4 million Illinois exemption is wasted. It cannot be carried forward. At the second death, the entire combined estate is measured against only one $4 million exemption, even though the couple effectively had $8 million of Illinois exemption available between them. Illinois's rates then climb quickly, from under 1% just above the exemption to 16% on amounts over roughly $10 million, so a couple with a $6–$9 million estate can generate a state estate tax bill well into six figures at the second death — a bill that proper planning could have avoided entirely, regardless of what the federal return looks like.
How an ABC Trust Works
An ABC trust is a revocable living trust drafted to split into three shares at the first spouse's death:
- Trust A — the Survivor's Trust: the surviving spouse's own share, which they continue to control and can amend or revoke like before.
- Trust B — the Bypass (Credit Shelter) Trust: funded with up to $4 million from the deceased spouse's share. It is irrevocable, the survivor can receive income and support from it, but the assets are removed from the survivor's taxable estate. This is the trust that actually captures the first spouse's Illinois exemption.
- Trust C — the Marital (QTIP) Trust: holds the balance of the deceased spouse's estate above $4 million. It qualifies for the unlimited marital deduction, so no tax is due at the first death, and the survivor receives all the income for life.
The Illinois-Specific Move: A State-Only QTIP Election
Here is where decoupling becomes an opportunity rather than just a trap. Because Illinois no longer conforms to the federal estate tax, its executor can make a “state-only” QTIP election on Trust C for Illinois purposes — independent of whether a federal estate tax return is even required. Many couples with a combined estate well under the $15 million federal exemption will never need to file a federal return at all. But by filing a protective federal return and making the Illinois QTIP election, Trust B locks in the first spouse's full $4 million exemption at the first death, and Trust C is includable in the survivor's estate later, where the survivor's own $4 million exemption then applies against it. Done correctly, a couple can shelter up to $8 million from Illinois estate tax using both spouses' exemptions, instead of just one.
Why This Has to Be Built in Advance
The ABC structure only works if it is written into the estate plan before the first spouse dies. Once assets have already passed outright to a surviving spouse under a simple will or a joint trust with no bypass provision, the first spouse's exemption is gone for good — there is no fix at the second death. If your combined estate is approaching or exceeds $4 million, or your existing documents were drafted before the current exemption amounts, it is worth having your plan reviewed now, while both spouses are living and the full range of options is still available.