One of the primary concerns within estate planning is the potential expense of estate taxes. These taxes, also known as “death taxes,” are levied on the estates of the recently deceased, applying before assets pass to designated beneficiaries.
Tennessee residents should be aware of the state’s unique estate tax exemption laws and understand how these laws impact estate planning. It may be beneficial to consult with a professional estate planning attorney for guidance on state and federal estate taxes.
Does Tennessee Impose an Estate Tax on Residents?
Tennessee is one of 38 states that does not mandate an estate tax.
An inheritance tax previously applied to amounts exceeding the exemption amount for a given year. However, the state stopped imposing the tax after December 31, 2015. Unlike the estate tax, the inheritance tax applies after distribution to beneficiaries. Tennessee residents will only face an inheritance tax if they inherit property from a resident of another state where an inheritance tax applies.
State residents are still subject to federal estate taxes if the value of their estate exceeds the current exemption amount of $13.99 million. This means that assets totaling less than the exemption amount do not constitute a taxable estate during the transfer to beneficiaries. For estates exceeding this amount that undergo probate, taxes may slow down the process.
Tennessee residents can choose a trust-based estate to avoid the more lengthy public probate process and to maintain more privacy when navigating estate taxes for non-exempt sums.
Understanding the Federal Estate Tax for Non-Exempt Accounts
Tennessee residents with large estates should understand the intricacies of the federal estate tax. First, it is essential to note that married couples can often apply both parties’ exemptions to their estate, thereby protecting a total of $27.98 million for their beneficiaries, provided the proper steps are taken.
It is also important to understand the ascending rates of estate taxes, which reach their ceiling of 40%. The tax rate for an estate above $13.99 million depends on the size of the taxable estate (i.e., how much more than $13.99 million the estate holds).
The rate ranges from 18% to 40%, in addition to a base rate tax. It can be helpful to consult a financial expert who is knowledgeable about the intricacies of state and federal tax laws and regulations.
Other Tax Benefits in Tennessee for Retirees
Tennessee’s lack of estate or inheritance tax makes it one of the most popular states for retirees, as one can pass on their estate and know it will be safe from large deductions. The state also lacks a social security income tax and does not mandate any tax for retirement account withdrawals or pension payments. Essentially, money earned in retirement is not subject to income taxes in Tennessee (even for those who pursue post-retirement work).
The state also maintains relatively low property taxes, making homeownership more feasible for retirees on a fixed income. Those planning to retire soon should understand how their state of residency will impact their estate planning and tax obligations.
Consult The Ebbert Law Firm
Those beginning to plan their estate in Tennessee can trust The Ebbert Law Firm to guide them toward effective tools for asset management. The Ebbert Law Firm can assist Tennessee residents with wills and trust-based estate planning, as well as provide general legal advice on state and federal estate taxes. It can be helpful to seek professional legal advice regarding your estate to protect your assets and ensure that your documents are legally valid and comply with all relevant regulations.
Call 865-229-8509 to learn more about estate planning or to schedule a consultation with The Ebbert Law Firm.
FREQUENTLY ASKED QUESTIONS (FAQ):
Does Tennessee have an estate tax?
No, Tennessee does not have a state estate tax. The state also no longer imposes an inheritance tax.
Are Tennessee residents subject to federal estate taxes?
Yes, Tennessee residents are subject to federal estate taxes if their estate value exceeds the federal exemption amount.
What are the tax benefits for retirees in Tennessee?
Tennessee does not have a state estate tax, inheritance tax, social security income tax, or tax on retirement account withdrawals or pension payments.