The changing landscape of estate tax planning in Tennessee

Date: March 3, 2014
Author: Robert Pautienus

The changing landscape of estate tax planning in TennesseeOver the last two years I have met with many clients to review and update their estate planning. One of the consistent areas of estate planning that needs to be reviewed is tax shelter planning. The tax planning landscape over the last ten years has dramatically changed. I have also worked with numerous clients over the last two years who did not update their estate planning, and upon the death of the first spouse, the surviving spouse was required to fund an unnecessary tax shelter trust. In some of those situations we were able to take some steps to avoid the funding, but it resulted in needless expense and delay for the client.

Prior to 2012, the Tennessee Inheritance Tax was assessed against any estate with a net value of more than $1,000,000.00 (known as the "Maximum Single Exemption"). The value of the estate includes everything in the decedent's name, including IRAs and term life insurance. When you add up everything, the Tennessee Inheritance Tax impacts many Tennesseans. The estate planning to address the problem typically involves tax shelter trusts, either through a Last Will & Testament or a Revocable Trust. However, the need for this type of tax planning in Tennessee significantly changed in 2012. On May 29, 2012, Tennessee amended the Inheritance Tax by raising the Maximum Single Exemption amount, and implementing a phase out over four years. In 2013, the Tennessee exemption amount was raised to $1,250,000.00. In 2014 it is $2,000,000.00 and in 2015 the Maximum Single Exemption rises to $5,000,000.0. The Tennessee Inheritance Tax is then repealed starting in 2016.

As a result of the changes in the Tennessee Inheritance Tax, including its phase out in 2016, many Tennessean with tax shelter trust planning need to revisit their planning, particularly if the funding of the tax shelter trust is mandatory at the first spouse's death. There are definitely reasons to still implement tax shelter planning, but it is important to consult with a professional to determine what planning best fits your needs. If you would like more information or to set up a consultation to review your planning, call or email us at Fidelis Law.