If you are a resident of Tennessee, it's important to understand the state's inheritance tax laws. This can help you make informed decisions regarding estate planning and passing on assets to your loved ones. In this post, we will discuss the basics of Tennessee's inheritance tax laws and provide some tips to help you navigate the process more smoothly.
What is an Inheritance Tax?
An inheritance tax is a tax that is imposed on the transfer of assets from a deceased person to their heirs or beneficiaries. Not all states have an inheritance tax, and Tennessee is one of them. This means that if you inherit assets from a deceased person in Tennessee, you will not have to pay any inheritance tax to the state.
Tennessee stopped imposing an inheritance tax after December 31, 2015.
However, it's important to note that a federal estate tax may apply if the value of the deceased person's estate exceeds a certain threshold. As of 2023, this threshold is $12.92 million for individuals and $25.84 million for married couples.
For more information on the federal estate tax rates, review the IRS website here.
Who is Responsible for Paying Estate Taxes?
In the event that an estate exceeds the aforementioned thresholds and becomes subject to federal estate tax, responsibility for payment generally falls to the executor of the estate. The executor, sometimes referred to as a personal representative, is typically named in the decedent's will. If no executor has been named, the court will appoint one.
Funds to pay the federal estate tax usually come from the estate itself. Assets may need to be liquidated to cover the tax bill. It's advisable to consult with a tax professional or attorney to understand the best strategies for dealing with potential estate tax liability.
Note: estate taxes are typically due within a certain period. If you are named executor, we recommend you speak with an attorney familiar with estate administration in TN (like ours at Casey, Simmons & Bryant, PLLC) for guidance and to ensure you do not miss any deadlines.
Minimizing Estate Taxes for Your Beneficiaries in Tennessee
As the executor or individual planning your estate, several strategies can be employed to help mitigate the impact of estate taxes on your beneficiaries. Proper estate planning can significantly reduce, if not entirely avoid, the tax liabilities when your estate passes to your heirs.
Here are some popular estate planning tools that may be beneficial to you:
- Trusts: A trust can help avoid or reduce estate taxes by removing assets from your estate before you pass. There are several types of trusts, including revocable and irrevocable trusts, each with its own pros and cons.
- Gifts: The IRS allows you to give away a certain amount of money or assets each year without incurring gift tax. This can reduce the size of your estate and potentially avoid estate taxes.
- Charitable donations: Donating part of your estate to a qualifying charity can reduce the size of your estate, possibly reducing estate tax.
- Family limited partnerships or family LLCs: These can help you transfer your business or other assets to family members at discounted values for tax purposes.
Remember, every situation is unique. When considering these strategies, it's critical to seek legal advice to ensure they align with your specific circumstances and estate planning goals.
The lawyers at Casey, Simmons & Bryant, PLLC, can assist you with your estate planning needs in Tennessee. Contact us today to get started.