While Tennessee is a common law state, a married couple can elect to treat certain property as community pursuant to statute.
Beginning in 2016, Tennessee imposes no inheritance tax. Prior to 2016, the state made a distinction between two classes of beneficiaries when it came to imposing the inheritance tax. However, there was no difference in the tax rate and exemption amount for each class of beneficiaries.
Class A Beneficiaries included: Spouse, children, lineal ancestor, lineal descendant, siblings, stepchildren, son-in-law or daughter-in-law.
Class B Beneficiaries included: all other persons.
Class A and B Exemption Amount – $2,000,000 in 2014; $5,000,000 in 2015.
Class A and B Tax Rate: Began at 5.5% of the initial $40,000 net taxable estate up to 9.5% of the excess over $440,000.
Tennessee imposes an estate tax equal to the maximum credit allowed under the federal tax code for paid state estate and inheritance taxes under IRC Sec. 2011.
Tennessee imposes a GST tax equal to the maximum credit allowed under IRC Sec. 2604 for paid state GST tax.
Tennessee no longer imposes a gift tax. For gift transfers made before January 1, 2012, the gift tax rate and annual exemption amount depends on the relationship between the donor and donee.
Class A – Spouse, child, lineal ancestor, lineal descendant, sibling, son-in-law, daughter-in-law, or stepchild, niece or nephew (if donor has no child or grandchild). Annual exemption amount per donee is $13,000. Only one class exemption per year of $10,000 is permitted for a gift of a future interest. Tax rate begins at 5.5% on the initial $40,000 of net taxable gift(s), and goes up to 9.5% on the excess of $440,000.
Class B – Everyone else. Total annual exemption amount of $5,000 and a limit of $3,000 to a donee. Tax rate begins at 6.5% on the initial $50,000 of net taxable gift(s), and goes up to 16% on the excess of $200,000.
Gift Splitting – With the written consent of a spouse included with the gift tax return, a donor can split a gift, effectively doubling the exemption amounts.
The minimum age of a person competent to make a will is 18.
The number of witnesses necessary to execute a will is two.
The original custodial gift may be a life insurance policy or annuity contract.
Custodial property may be invested in or used to pay premiums on (1) a policy on the minor's life if the minor's estate is the sole beneficiary, or (2) a policy on a third party in whom the minor has an insurable interest, if the minor or the custodian is the irrevocable beneficiary.
The custodial arrangement terminates when –
The minor child reaches age 21. However, the donor can delay the transfer up to age 25 if done in writing, and, for an inter-vivos gift, the writing expressly states that deferring the termination of the custodianship beyond age 21 will characterize the transfer as a gift of a future interest that could have federal and gift tax consequences.
The minor child dies.
Non-qualified Annuities: Exempt from creditors of the insured if the beneficiary is a spouse, child or dependent relative of the insured.
Life Insurance Cash Value: Exempt from creditors of the insured if the beneficiary is a spouse or child.
Life Insurance Proceeds: Exempt from creditors of the insured if the beneficiary is a spouse, child or dependent of the insured (even if proceeds are payable to the insured’s estate).
Tennessee passed the Uniform Fiduciary Access to Digital Assets Act to ensure that testators can retain control of their digital property and plan for its ultimate disposition. To read more about the Act, click here.
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