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 Exemptions Raised Today for 2015.

IRS Recently Announced 2015 Limits for Estate and Gift Tax Exemptions

The IRS recently introduced certain cost of living adjustments to the consolidated federal estate and gift tax exemption.  The new federal estate and gift tax exemption will be $5.43 million dollars in 2015.  This is an increase from the prior exemption of $5.34 million for 2014.  This is therefore an increase of $90,000.00 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 $5.43 million for 2015.  As a result, each year you can give up to $14,000.00 to an individual under the annual gift tax exclusion without it counting towards your lifetime exemption amount.

As I have stated before, estate taxes are becoming less relevant due to the “permanent” fix that was provided by the federal government a few years ago.  Additionally, the Tennessee inheritance tax exemption will be $5,000,000.00 in 2015 and it is abolished starting in 2016. 

New 2014 Tennessee Statute Increases Number of Estates that Are Not Required to File Inheritance Tax Return

The Tennessee Legislature in the 2014 Tennessee Legislative Session passed Public Chapter No. 808 which greatly increases the number of Tennessee estates that do not need to file any kind of inheritance tax return.  This new bill amended T.C.A. § 67-8-409.  Prior to this amendment, estates where an individual died before January 1, 2014 were exempt from filing a Short Form Inheritance Tax Return if the gross value of the decedent’s estate did not exceed $100,000.00 and the trial court waived the requirement.  With this new amendment, estates where the deceased died on January 1, 2014 or after, no Short Form Inheritance Tax Return is required as long as the gross value of the estate is $1,000,000.00 or less (and the Court provides a waiver in the Order).  For those who die in 2015, the amount estates can be valued before the requirement to file an inheritance tax return will be $2,000,000.00.  The court can simply waive the filing of the Inheritance Tax Return upon a statement of the gross amount of the estate (this is generally done as a matter of course in Tennessee).

As I have previously discussed the Tennessee Inheritance Tax will be abolished effective January 1, 2016.  This new amendment to Tennessee law further attempts to eliminate the necessity of filing Inheritance Tax Returns with the Tennessee Department of Revenue. 

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.

Tennessee Inheritance Tax – Are Life Insurance Policies Included in the Estate of the Decedent for Tennessee Inheritance Tax Purposes?

Under T.C.A. § 67-8-306, life insurance policies are included in the gross estate of the decedent when calculating the size of the estate of inheritance tax purposes.  This is true whether the policies of insurance are payable to named beneficiaries or to the decedent’s estates.  This is a general rule and the complete statute is as follows:

(a) If the decedent was a resident of this state, there shall be included in the gross estate the proceeds of insurance policies payable to named beneficiaries, or to the decedent's estate, or in such manner as to be subject to claims against the decedent's estate and to distribution as a part thereof.

(b) This section shall include the proceeds of insurance policies commonly known as “paid-up contracts” or “investment contracts” or “annuity contracts” or similar types or forms of policies, the surrender value of which was subject to the control of the decedent prior to death.

(c) Where life insurance, the proceeds of which are under the control of the decedent, is left by the decedent in such manner that the proceeds thereof cannot be subjected to the payment of the decedent's debts and where the proceeds of such insurance are received by beneficiaries thereof and are not subjected to the debts of the decedent, the fact that the decedent may have been insolvent and that a portion of the decedent's debts may remain unpaid shall not affect the liability for inheritance tax upon such insurance.

A lot of people forget to consider life insurance policies when making a determination of potential estate tax liability.  This must be taken into consideration in Tennessee.

Tennessee Inheritance Tax – When is the Tennessee inheritance tax due to the Tennessee Department of Revenue?

The inheritance tax is due to the Tennessee Department of Revenue nine months after the death of an individual who owes the tax.  T.C.A. § 67-8-419(a) provides the following:

(a) The tax imposed by this part and part 3 of this chapter shall be due and payable nine (9) months after the death of the transferor, or at the expiration of the additional time granted by the commissioner pursuant to § 67-8-409, but such tax may be paid sooner, if assessment thereof has been completed, and if the personal representative desires to make payment.

It is important to note that the Commissioner of the Tennessee Department of Revenue has the ability to provide exceptions when the tax payment within the nine month time period would cause an undue hardship on the estate.  The Department of Revenue and the representatives of the estate can enter into an agreement for payment of the inheritance tax in installments or come up with another plan that is appropriate to handle the situation.  T.C.A. §67-8-419(b) provides as follows:

(b) When it is shown to the satisfaction of the commissioner that the payment on the due date of any part of the amount determined to be due would impose undue hardship upon the estate, or would necessitate the sale of any portion of the estate at a sacrifice, or at an inadequate price, the commissioner may extend the time for the payment of any such part of the tax, or may enter into an agreement with the representative of the estate for the payment of the tax due thereon in installments. Such an agreement for the payment of the tax in installments, or for the deferment of payments, shall not affect the liability of the estate for interest. The running of the statute of limitations for assessment and collection, as provided in § 67-1-1501, shall be suspended for the period of any such extension. If an extension is granted, the commissioner may, if the comm...

Tennessee Inheritance Tax – Is jointly held property considered part of the decedent’s taxable estate under Tennessee law?

Under Tennessee law, jointly held property can be considered part of the deceased individual’s taxable estate.  T.C.A. § 67-8-305 discusses property transfers that occur upon someone’s death by right of survivorship (often under tenants by the entirety or tenancy by the entirety) or any payable on death accounts including joint accounts held in multiple people’s names.  Under T.C.A. § 67-8-305, if such transfers occur between husband and wife at the death of the decedent then only one half of the value of the account or property is considered a taxable transfer.  However, if the accounts or property are owned jointly by individuals who are not husband and wife then the “entire value of any such property shall be deemed to have been transferred from the decedent to the survivor” and therefore is subject to the Tennessee inheritance tax. 

Additionally, under subsection (a)(2) if the survivor who inherits from the decedent who had a joint account or owned joint property with the decedent actually contributed money towards the account or purchase, then that amount is deducted from the value that is considered to be part of the taxable estate.  In other words, if the survivor deposited money in the bank account or paid for part of the property that was jointly held, then that amount will reduce the taxable estate of the decedent.

T.C.A. § 67-8-305 provides in its entirety as follows:

(a) Whenever any property was held jointly by the decedent and one (1) or more persons as tenants by the entirety or otherwise, or was deposited in banks or other depositories or institutions in the joint names of the decedent and one (1) or more other persons and was payable to one (1) or more, or to the survivor or survivors, so that, upon the death of the decedent, the survivor or survivors became entitled to the immediate possession, ownership or enjoyment of such property, the entire value of any such property shall be deemed to have been transferred from the decedent to the survivor or survivors, and such transfer shall be subject to the inheritance tax imposed by parts 3-5 of this chapter, except: