Tennessee Inheritance Tax – Are Life Insurance Policies Included in the Estate of the Decedent for Tennessee Inheritance Tax Purposes?

Under T.C.A. § 67-8-306, life insurance policies are included in the gross estate of the decedent when calculating the size of the estate of inheritance tax purposes.  This is true whether the policies of insurance are payable to named beneficiaries or to the decedent’s estates.  This is a general rule and the complete statute is as follows:

(a) If the decedent was a resident of this state, there shall be included in the gross estate the proceeds of insurance policies payable to named beneficiaries, or to the decedent's estate, or in such manner as to be subject to claims against the decedent's estate and to distribution as a part thereof.

(b) This section shall include the proceeds of insurance policies commonly known as “paid-up contracts” or “investment contracts” or “annuity contracts” or similar types or forms of policies, the surrender value of which was subject to the control of the decedent prior to death.

(c) Where life insurance, the proceeds of which are under the control of the decedent, is left by the decedent in such manner that the proceeds thereof cannot be subjected to the payment of the decedent's debts and where the proceeds of such insurance are received by beneficiaries thereof and are not subjected to the debts of the decedent, the fact that the decedent may have been insolvent and that a portion of the decedent's debts may remain unpaid shall not affect the liability for inheritance tax upon such insurance.

A lot of people forget to consider life insurance policies when making a determination of potential estate tax liability.  This must be taken into consideration in Tennessee.