Posted by: DANIEL K. CARTER
Posted on: June 8, 2012
Governor Haslam recently signed the following two significant Tennessee tax bills into law:
1. Tennessee Inheritance Tax Phase-Out:
On May 21, 2012, the Governor signed into law HB3760, which increases the maximum allowable exemption for the Tennessee inheritance tax (presently $1 million) to $1.25 million in 2013; $2 million in 2014; $5 million in 2015; and to be ELIMINATED beginning in 2016. How much will this save you? If you died in 2012 in Tennessee with a $5 million estate, your inheritance tax bill would be in excess of $350,000, but if you die with same estate in 2015 or later, your Tennessee inheritance tax bill would be ZERO!
Should you change your estate planning documents? If it has been several years since your last estate plan review, now would be a great time to revisit your documents to determine whether they are still appropriate for your family. However, remember that while this new law helps us a great deal to know the future of the Tennessee tax situation, the federal government has not done us the same favor. Under the current law, the federal exemption of $5.12 million per person is set to expire at the end of this year, and if nothing is done by Congress, the exemption is to reset at $1 million for years 2013 and thereafter. Although this drastic reduction in exemption is not expected, there is no certainty as to what will be in place as the federal estate tax exemption this time next year or in the future!
2. Tennessee Gift Tax Repeal:
Additionally, on May 21, 2012, the Governor also signed into law SB2777, which REPEALS the gift tax in Tennessee so that gift taxes will not apply to any transfer made by gift on or after January 1, 2012.
Many clients have been considering making large gifts due to the 2012 federal gift tax exemption of $5.12 million that is set to expire on December 31, 2012 and reset at $1 million for 2013 and thereafter. However, in the past, the Tennessee gift tax has been a considerable out-of-pocket expense for Tennessee residents (and certain non-residents) making large gifts. This repeal of the Tennessee gift tax opens the door to Tennessee residents making large gifts in 2012 without any out-of-pocket costs. If you are interested in making large gifts, please call us or your estate planning attorney to discuss further.