Inheritance Tax and Gift Tax in Tennessee

No one enjoys paying taxes. You work hard for your money, and you want to hold onto as much of it as you can to provide for your family. People are always looking for legal ways to avoid having to pay any more money than they already pay. However, taxes can be a complicated subject. More importantly people are looking to understand when taxes apply and when people do not have to pay them. Tennessee has updated its tax laws recently regarding both its inheritance tax and gift tax. We hope the following information provides some basic information about Tennessee’s inheritance and gift taxes.

No Longer a Gift Tax in Tennessee

You may have heard about gift taxes. A gift tax is tax excised on any gifts that are worth more than a set of money. Tennessee had been one of only two states with a gift tax. However, the Tennessee General Assembly repealed the gift tax last year effective January 1, 2012. Before the tax was repealed, gifts in the amount of $13,000 or under had been exempt from the tax if the gift was made to a child, sibling, spouse, or other lineal descendent. The exempted amount to all other people was for any gift worth $3,000 or under. The tax rate ranged from 5.5% to 16% for any non-exempt amount. You should note that any gift made before the repealing of the tax may still be subject to the gift tax. However, gifts made after January 1, 2012 will be free of any state gift tax. It is also important to note that although Tennessee has repealed its gift tax, there still is a federal gift tax. The annual exclusion for gifts under the federal gift tax law is $14,000 for 2013 and 2014.

Inheritance Tax in Tennessee

In 2012, the Tennessee General Assembly chose to phase out the state’s inheritance tax over a period of several years. The inheritance tax is levied on an estate when a person passes away. The legislature set forth an exemption schedule for the tax with incremental increases for the exemptions until it is completely eliminated in 2016. Tennessee’s tax exemption schedule is as follows:

  • Year – Amount Exempted
  • 2012 - $1,000,000
  • 2013 - $1,250,000
  • 2014 - $2,000,000
  • 2015 - $5,000,000
  • 2016 – Inheritance tax completely eliminated

For any estate that is valued under the exemption limit for a particular year, the inheritance tax does not apply. However, if the value of the estate is over the exempted allowance for a particular year, the tax rate ranges from 5.5% at the lowest end to 9.5% at its highest end. However, there is also a federal estate tax that may apply. The federal estate tax exemption is for estates valued under $5,250,000 for decedents who die in 2013, and that amount increases to $5,340,000 in 2014.

We hope this general information can be helpful to anyone trying to understand the possible tax implications in estate planning. If you need help with setting up your estate plan, contact one of our Tennessee estate planning attorneys at The Higgins Firm.