Tennessee estate taxes for 2015 and 2016

State estate taxes are scheduled to lapse in 2016.

Tennessee is one of only fifteen states that currently levy a state estate tax in addition to the federally collected taxes. Depending on the details of the estate, those who live in Tennessee may end up paying estate taxes twice: once to the federal government and once to the state. Those who are considering putting together or updating an estate plan are wise to have a basic understanding of these potential tax implications.

The future of the estate tax in Tennessee

Lawmakers in Tennessee passed laws in May of 2012 that are scheduled to remove these estate taxes within the state. The move, according to a piece in Forbes, was designed to both attract and retain wealthy retirees to the state. Reduced tax burdens, it was reasoned, would ultimately increase revenue within the state by retaining the "entrepreneurship, spending, homes and wealth" that come with retirees. Regardless of the reasoning, the law directly impacts estate taxes in both the 2015 and 2016 tax years.

More on Tennessee state laws

The inheritance tax in Tennessee will not be fully phased out until 2016. As of 2015, an inheritance over $5,000,000 will be taxed. However, as of 2016 no tax will be applied. The tax applied on the amount over the exemption is as follows:

  • 5.5 percent is applied to the first $40,000 to $1,000,000
  • 6.5 percent to the next $40,000 to $240,000
  • 7.5 percent to the next $240,000 to $440,000
  • 9.5 percent to the remaining $440,000 and over

According to the Tennessee Department of Revenue, the personal representative of the estate is required to file an inheritance tax return if the gross estate is greater than the exemption. The return is generally due nine months after the passing of the owner. In some cases, an extension of the tax payment may be granted.

In addition to inheritance taxes, additional taxes may be owed on the estate. This could include property taxes and a final income tax return as well as estate income tax if income was made on the estate after the owner’s death.

Estate planning and the importance of legal counsel

Various legal tools are available that can help an estate reduce its tax obligations. Although the state tax is sun setting, the federal tax remains. As a result, it is wise to seek the counsel of an experienced Tennessee estate planning lawyer. This legal professional will review the details of your estate and tailor a plan to better ensure your needs are met.