If you are a resident of Tennessee, the amount of state tax your estate will owe, as of January 1, 2016 is: zero. Tennessee’s inheritance tax (known in most states as an “estate tax”) phased out permanently at the start of 2016, which means for anyone who passed away on or after January 1, 2016, no estate tax will be due to the state of Tennessee.
This change is the result of a law passed by the Tennessee legislature in 2012 that gradually increased the inheritance tax exemption (the maximum amount of a taxable estate subject to the tax) until the 2016 repeal of the tax altogether, leaving only 14 states and the District of Columbia with estate taxes still on the books.
What a difference 4 years makes! In 2012, a $2 million Tennessee estate could expect to pay more than $80,000 in state taxes (between 5.5% and 9.5% of the taxable estate above a $1 million state exemption). In 2016, that same estate owes no state taxes in Tennessee.
How does this development impact a prudent estate plan in Tennessee today? Is it time for you to make changes?
In previous years, many family estate plans in Tennessee were structured to avoid state and federal estate taxes, and for good reason. As recently as 2001, estate taxes could reach as high as 55% on estates larger than the $675,000 exemption in place at the time. Complex solutions like QTIP or marital gap trusts were seen as the best way to preserve family wealth against state and federal estate tax bills.
Now that Tennessee’s Inheritance Tax has been abolished, and the federal estate tax exemption has increased to $5.45 million in 2016 (with a potential federal exemption of $10.9 million for a married couple), estate taxes may no longer be the biggest barrier most Tennessee families face while seeking to maximize the amount a spouse or other heirs will receive following the death of a loved one.
Major changes in tax law like the repeal of Tennessee’s inheritance tax on January 1, 2016, are good occasions to revisit your estate plan (along with major life events like marriage, divorce, birth or adoption of children, or the death of a loved one). You may want to consult with an attorney to make sure your approach is still the right one for you and your family, especially if your will, trust, or estate plan was created prior to 2012.
One thing that did not change on January 1, 2016 is the need for everyone to have essential documents in place – a will (or living trust), powers of attorney, and a living will – that accurately reflect your wishes. Proper estate planning is an important step in preparing for your family’s future needs. It also ensures peace of mind for your loved ones in knowing your intentions are being carried out. Why let the state legislature make these personal decisions for you?
Please contact us today online or by calling 800.705.2121 to discuss your legal options.