Inheritance tax and estate tax are the essential matters everyone should think about planning their estate. If you have sufficient property in Tennessee, it is very important to start the estate planning procedure as soon as possible and address for professional assistance in this process to protect your legacy for the heirs.
The estate tax, also referred to as a “death tax,” applies to all the estate of the recently deceased before the assets are transferred to the heirs. Inheritance tax is levied on the estate after the procedure of inheritance, which makes heirs responsible for the tax due.
Tennessee is among the states that don`t impose estate tax and inheritance tax on the residents and their estates. However, there are several cases when the Tennessee residents may become responsible for paying certain taxes inheriting an estate.
How do the inheritance and estate tax laws work in Tennessee?
Technically, Tennessee residents don`t have to pay the inheritance tax. However, it applies only to the estate physically located and transferred within the state between Tennessee residents.
For example, the neighboring state of Kentucky does have an inheritance tax. It means that even if you are a Tennessee resident but have an estate in Kentucky, your heirs will be responsible for the state`s inheritance tax due.
Moreover, the federal estate tax applies to all property that exceeds the federal estate tax exemption of $12,06 million.
In other words, if you own assets in different states or have a sufficient estate, it is essential to start the estate planning procedure as soon as possible to protect as much of your estate as possible for the heirs.
Gift tax and estate planning in Tennessee.
Tennessee also has no gift tax. It means that every resident of the state can gift away sufficient amounts of their property, reducing its taxable part as long as those gifts stay within the annual gift tax exclusion.
The federal gift tax exclusion has a limit of $16,000 per recipient. It means that every Tennessee resident can make $16,000-worth gifts to as many people as they wish without filing a gift tax return or having those gifts count against the lifetime exemption.
In case you make a “taxable” gift that goes over the $16,000 limit, there still won`t be the need to pay the gift tax unless it goes over your lifetime exemption amount. Also, in this case, you need to file Form 709: U.S. Gift (and Generation-Skipping Transfer) Tax Return.
It allows every Tennessee resident to reduce the taxable part of their estate, gifting it away to the heirs $16,000 per person every year.
The inheritance and estate taxes won`t be a concern of Tennessee residents who don`t own or inherit the estate in other states or whose estate does not go anywhere around the lifetime exemption of $12,06 million.
However, it is important to remember that the federal estate tax applies to all assets, including real estate, stocks, bonds, cash, etc. Thorough estate planning with professional assistance will help you determine the taxable part of your estate and reduce it as much as possible, protecting the wellbeing of your heirs.
