Governor Bill Haslam signed legislation on May 21st that repeals the TN Gift Tax and restructures the TN Inheritance Tax.
Effective Jan. 1, 2012, TN no longer has a Gift Tax. Any gifts made prior to Jan. 1, 2012, still fall under the old law [i.e. $13,000.00 tax free limit per year per Class A Donee/Immediate family members] and the 3-year look back rule for gifts made within 3 years of death still applies. Gifts made in excess of $13,000.00 will still result in a Federal Gift Tax Return being required, but there will be no taxes due in most cases.
As for the TN Inheritance Tax, the current maximum allowable exemption of $1,000,000.00 will increase to $1,250,000.00 on Jan. 1, 2013; increase to $2,000,000.00 in 2014; increase to $5,000,000.00 in 2015; and in 2016, it is eliminated altogether and there will no longer be a TN Inheritance tax.
The Federal death tax exemption currently remains at $5,000,000.00 and is scheduled to reduce to $1,000,000.00 on Jan. 1, 2013. However, Federal Legislation is expected (before or after the Presidential election) that will affect that scheduled change in the Federal death tax exemption.
As a result of this State legislation, the roles of State and Federal death taxes have essentially been reversed, so be sure to contact your estate planning attorney, Sharon Potter or Kevin Dean, to review/re-assess your death tax issues.