Estate and inheritance taxes are taxes on the transfer of wealth after someone dies. They can be complicated, but the good news for Volunteer State residents is that Tennessee doesn’t have its own estate tax, inheritance tax, or gift tax.
That’s right, there’s no Tennessee inheritance tax! But it’s still important to understand the federal estate tax, as it could affect you and your family.
Let’s take a closer look at how federal estate tax regulations apply to those living in Tennessee.
Estate tax vs. inheritance tax: What’s the difference?
It’s easy to confuse estate tax and inheritance tax, so let’s take a minute to define each term.
What is estate tax?
Estate tax is a tax on the total value of a deceased person’s assets. It’s paid by the estate itself before the assets are distributed to the people who inherit them. This tax only applies to estates that are worth more than a certain amount.
What is inheritance tax?
Inheritance tax, on the other hand, is a tax on the people who inherit assets from an estate. The heir or beneficiary pays this tax, not the estate. In some states, the amount of tax you owe depends on your relationship to the person who died.
Key Differences
- Estate tax is paid by the estate; inheritance tax is paid by the person who receives the assets.
- Estate tax is based on the total value of the estate; inheritance tax is based on the value of what each person inherits.
Tennessee’s tax landscape: Estate, inheritance, and gift taxes
When planning your estate, it’s important to understand how state and federal taxes will affect your assets after your death. Here’s a quick look at Tennessee’s tax laws related to estates, inheritances, and gifts.
Tennessee estate tax: None
Tennessee doesn’t have a state estate tax, which is a big plus for people with sizable estates.
Tennessee inheritance tax: None
Good news for your heirs: Tennessee doesn’t have a state inheritance tax, so your beneficiaries won’t owe state inheritance tax on anything they inherit from you.
Tennessee gift tax: None
Tennessee also doesn’t have a gift tax. That means any gifts you give while you’re alive won’t be subject to state tax.
Overall tax picture
Tennessee is generally considered tax-friendly for retirees since it doesn’t tax Social Security income, retirement account withdrawals, or pensions. Property taxes are also relatively low in Tennessee.
The federal estate tax
Even though Tennessee doesn’t have its own estate tax, that doesn’t mean Tennesseans are completely off the hook. The federal government also levies an estate tax.
However, the federal estate tax only applies to estates that are larger than a certain amount.
Federal estate tax exemption
For 2024, the federal estate tax exemption is $13.61 million. In 2025, that number rises to $13.99 million.
Keep in mind, though, that these exemption amounts can change depending on what Congress decides.
Portability for married couples
Here’s some potentially good news if you’re married: the federal estate tax exemption is “portable,” meaning that if one spouse dies, the surviving spouse can use any of the deceased spouse’s unused exemption. That means a married couple could potentially protect nearly $28 million from estate taxes.
Federal estate tax rates
If your estate exceeds the exemption amount, the federal estate tax rates can range anywhere from 18% to 40%, depending on how much the estate is worth.
Strategies for managing federal estate tax
Even though Tennessee doesn’t have an inheritance or estate tax, your estate may still be subject to federal estate tax. Here are some strategies to consider:
Gifting strategies
You can reduce the size of your taxable estate by gifting assets to loved ones. In 2024, you can gift up to $19,000 per recipient per year without incurring any gift tax.
Trusts
Setting up an irrevocable trust can remove assets from your taxable estate. There are many different types of trusts that you can use for estate planning, so it’s best to discuss your options with an experienced attorney.
Spending assets
Simply spending down the value of your estate can also help you avoid federal estate tax.
Marital deduction
Assets that you leave to your surviving spouse are generally exempt from federal estate tax, so that’s another way to reduce or eliminate your estate tax liability.
The Bottom Line
Tennessee residents, rejoice! You don’t have to worry about state estate, inheritance, or gift taxes. However, keep in mind that the federal estate tax might still apply, depending on the size of the estate.
Navigating estate planning can be tricky, so it’s always a good idea to seek professional guidance. An experienced estate planning attorney can help you understand the complexities of the law and ensure your wishes are properly documented. A qualified financial advisor can also help you develop a personalized strategy to manage your assets and minimize potential tax liabilities.
Don’t leave things to chance. Protect your loved ones and your legacy by working with the right professionals to create a solid estate plan.