2017 Limits for Federal Estate and Gift Tax Exemptions; Tennessee Inheritance Tax Abolished since 2016

The IRS has introduced new cost of living adjustments to the federal estate and gift tax exemption someone can use over their lifetime.  The new federal estate and gift tax exemption will be $5.49 million dollars in 2017.  This is an increase from the prior exemption of $5.45 million for 2016.  As a result, an additional $40,000.00 can be passed on by gift or in your estate, tax free starting in 2017. 

Unfortunately, the annual tax free gift exclusion amount stays at the same level at a total of $14,000.00 (this amount has been in place since 2013).  This is the annual dollar amount of gifts that can be given to an individual without counting toward the lifetime consolidated exemption of $5.49 million for 2017.  As a result, each year you can give up to $14,000.00 to an individual using the annual gift tax exclusion (in fact a married couple can each give the $14,000.00 – totaling $28,000.00 for each calendar year).  These gifts will not count towards your lifetime exemption amount for the Federal Estate tax.

Estate taxes are becoming less relevant to the majority of Americans due to the “permanent” fix that was provided by the federal government a few years ago.  The estate tax simply does not impact the vast majority of people.  Additionally, the Tennessee inheritance tax is now abolished in Tennessee for any person who dies in 2016 or later.  It simply does not exist any longer.  So there are no separate considerations needed to handle any Tennessee inheritance tax.

New IRS 2016 Limits for Federal Estate and Gift Tax Exemptions; Tennessee Inheritance Tax Abolished in 2016

The IRS recently introduced new cost of living adjustments to the lifetime federal estate and gift tax exemption.  The new federal estate and gift tax exemption will be $5.45 million dollars in 2016.  This is an increase from the prior exemption of $5.43 million for 2015.  This is therefore an increase of $20,000.00 that can be passed on by gift or in your estate, tax free starting in 2015. 

Unfortunately, the annual tax free gift exclusion amount stays at the same level at a total of $14,000.00.  This is the annual amount of gifts that can be given to an individual without counting toward the lifetime consolidated exemption of $5.45 million for 2016.  As a result, each year you can give up to $14,000.00 to an individual using the annual gift tax exclusion.  These gifts will not count towards your lifetime exemption amount.

As I have stated before on this blog, estate taxes are becoming less relevant to the vast majority of Americans due to the “permanent” fix that was provided by the federal government a few years ago.  The estate tax simply does not come into play for most people.  Additionally, the Tennessee inheritance tax is now abolished in Tennessee for any person who dies in 2016 or later.  It simply does not exist any longer. 

Tennessee and Federal Estate Tax – Are Revocable Living Trusts Included in the Taxable Estate of a Tennessee Decedent?

A question that is often asked is whether putting money in a revocable or living trust somehow excludes that money from the taxable estate for Tennessee or Federal Inheritance tax purposes.  T.C.A. § 67-8-307 provides that trust property is included in the taxable estate when the decedent reserves the right to revoke, alter or amend the trust so the decedent could retain the property (basically any revocable or living trust).  As a result, property in revocable or living trusts is generally considered to be included in the estate of the decreased for purpose of Tennessee Inheritance Tax purposes (as well as Federal Estate tax purposes).  T.C.A. § 67-8-307 provides as follows:

The gross estate of a resident shall include property specified in § 67-8-303(a)(1), and the gross estate of a nonresident shall include property specified in § 67-8-303(a)(2) transferred by the decedent by deed of trust in which the decedent reserved to the decedent, alone or in conjunction with others, powers of revocation, alteration or amendment, upon the exercise of which such property would revert to the decedent, to the extent of the value of such property subject to such powers and with respect to which such powers remained unexercised.

You should be very skeptical of any revocable or living trust product that claims to remove the property from the taxable estate.  Additionally, keep in mind that in Tennessee the Inheritance Tax will be abolished effective January 1, 2016.  Further the exemption for the Federal Estate tax is currently at $5,340,000.00 so very few people in fact actually need to worry about Federal Estate tax.  Fear of this tax often drives people to complicated trust products or expensive estate tax avoidance packages, however, this is usually unnecessary when simplicity would be the better path to take, when all things are considered.  I preach simplicity in Tennessee estate planning because often people do not follow through with the more complicated product designs and 99% (or more) of the population simply does not need complicated estate planning techniques.

Tennessee and Federal Estate Tax Exemptions Raised Today for 2014.

What is the Federal Estate and Gift Tax Exemption for 2014?

A lot of people ask about the possible taxation of their estate from the federal government – often referred to as the “estate tax” or “death tax”.  For the vast majority of people, this is an irrelevant issue due to recent changes in federal tax law that significantly increased the federal estate tax exemption.  However, the IRS has recently announced the new 2014 estate and gift tax exemption.  The new 2014 federal estate gift tax exemption is $5,340,000.00.  This an increase of $90,000.00 over the 2013 estate gift tax exemption of $5,250,000.00.  As a result, it is becoming very rare that an estate will reach this level in Tennessee, although it is still certainly possible with large estates.