There are a lot of compelling reasons to try to avoid probate — not the least of which is tax abatement. Nobody wants to think that a chunk of their hard-earned assets will end up in the government’s coffers.
Well, there’s some good news in that regard if you happen to live (and die) in Tennessee: The state eliminated inheritance taxes as of 2016 in an effort to make the state friendlier to retirees and people of means. Only estates where the testator died prior to 2016 remain subject to the old rules.
Does that mean your estate is in the clear tax-wise?
Not exactly. While the federal government doesn’t impose an inheritance tax, your estate could still be subject to federal estate tax if you have considerable assets.
In 2021, this only applies to estates that are valued at more than $11.7 million. While this is a pretty big cushion, keep in mind that the total value of your estate is counted — including the equity you have in any real estate holdings. If you own a home that’s shot up in value or farmland, for example, your estate could be worth a lot more than you think.
In addition, if you have holdings in other states — including second homes, vacation property, business property or undeveloped land — that property would be subject to any estate taxes or inheritance taxes imposed in that state.
Good estate planning can help you avoid problems for your loved ones with estate taxes and inheritance taxes through careful (but legal) maneuvers. Funding a trust with your property, for example, could be a viable option that will eliminate the problems.