In addition to undoubtedly countless other new laws within the nation, the new year has brought at least two big changes to laws regarding estate planning and related issues in Tennessee in 2015.
The first change deals with federal statutory law, namely the American Taxpayer Relief Act. The law was enacted in January 2013, and it made permanent the temporary provisions from 2010 (and revised in 2012 for inflation, and thereafter re-adjusted) regarding federal estate tax exemptions for estates totaling less than $5 million.
When adjusted for inflation, in 2015, only those estates worth in excess of $5.43 million per individual will be subjected to federal estate taxes. This is an increase from last year’s $5.34 million federal estate tax exemption. An individual’s estate is comprised of any and all real property, personal property, and other assets. For example, an estate can include things such as real estate, stocks and bonds, jewelry, art, investments, life insurance, and so forth. The estate itself is the value of all of these various assets combined at the time the estate passes to those who inherit it.
In addition to the increase in the size of the estate exempt from federal estate taxation, the federal lifetime gift tax exemption also increases to $5.43 million this year. Without the exemption, the gift tax could potentially apply to any gifts given. For example, if a parent decided to give a Picasso painting to his or her child, that transfer could be subjected to the gift tax. The gift tax is relevant to estate planning purposes because it can take away from the individual’s lifetime exemption amount, which may then become an issue once the estate becomes subject to taxation.
However, even if an estate is not subjected to federal estate taxation, it still may be subject to other taxes. These can include capital gains taxes, income taxes, and in Tennessee in addition to some other states, state estate taxation. In fact, some states have both a state estate tax and an inheritance tax. Additionally, several states have a state tax exemption amount that is lower than the federal estate tax exemption, meaning that the estates will be subject to taxes, even if they are lower than the federal $5.43 million threshold amount.
However, the good news for Tennesseeans is that our state has gradually begun phasing out the state estate tax. The tax rate, which currently ranges from 5.5% to upwards of 9.5% at its highest (much lower than the federal rate of up to 40% at its highest), will be eliminated completely in 2016. The exemption amount for an estate was $2,000,000 for any estate that vested in 2014, and this year it increases to $5,000,000, beginning on January 1, 2015. On January 1 of next year, it will be eliminated completely.
If you are concerned about the potential impact of any taxes or other considerations affecting your estate in Tennessee, contact the experienced Nashville-based estate planning attorneys at Martin Heller Potempa & Sheppard, PLLC. We can be reached through this website or by phone at (615) 410-2514. Our estate planning attorneys can counsel you regarding your various options, such as whether transferring title to assets now would be worthwhile, or whether changing the form of your investment would be more beneficial.