Tennessee Inheritance Tax Disappears in 2016
A significant estate planning change takes effect on January 1, 2016. For the first time in 86 years Tennessee will not have an inheritance tax. The Tennessee legislature in 2012 enacted a phase-out of the inheritance tax Tennessee has imposed on citizens since 1929. This will allow for simpler estate planning for most of our clients.
The Tennessee Inheritance Tax
The Tennessee tax was called an “inheritance tax,” but it was not technically a tax on beneficiaries who inherited property. It was actually a form of estate tax, similar to the still-existing federal estate tax. The tax was on what the state deemed the privilege of transferring property at death. The decedent’s estate was responsible for paying the tax, and the tax rates on taxable estates ranged from 5.5% up to 9.5%, less by far than the federal estate tax rates, but still an additional burden on taxable estates.
The federal estate tax remains, but the personal exemption from that tax is $5.45 million in 2016. Less than 1% of estates in the country are subject to the federal estate tax.
Why Tennessee is Killing Its Death Tax
Although the state loses revenue from the repeal of the inheritance tax, it has been argued that this change makes Tennessee more appealing to wealthier residents, to those thinking of moving to Tennessee, and to those contemplating retiring here. It is worth remembering too that Tennessee in 2012 also repealed its gift tax (Tennessee until then was one of only two states in the nation with a gift tax).
Making Tennessee a more favorable state from the standpoint of tax burdens is an effort to boost Tennessee’s economic growth. Along with tax relief, the state legislature has also been enacting progressive new laws in the area of trusts. All of these changes are important to persons making estate plans.
How Does This Affect Me?
The disappearance of Tennessee’s inheritance tax makes estate planning simpler, but it is still imperative that prudent persons continue to plan their estates. Every competent adult still needs a last will and testament and a general durable power of attorney for business and property purposes, and still needs to consider having a health care power of attorney and a living will for personal reasons.