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Tennessee and Federal Estate Tax – Are Revocable Living Trusts Included in the Taxable Estate of a Tennessee Decedent?

Posted on Feb 16 2014 11:30PM by Attorney, Jason A. Lee

A question that is often asked is whether putting money in a revocable or living trust somehow excludes that money from the taxable estate for Tennessee or Federal Inheritance tax purposes.  T.C.A. § 67-8-307 provides that trust property is included in the taxable estate when the decedent reserves the right to revoke, alter or amend the trust so the decedent could retain the property (basically any revocable or living trust).  As a result, property in revocable or living trusts is generally considered to be included in the estate of the decreased for purpose of Tennessee Inheritance Tax purposes (as well as Federal Estate tax purposes).  T.C.A. § 67-8-307 provides as follows:

 

The gross estate of a resident shall include property specified in § 67-8-303(a)(1), and the gross estate of a nonresident shall include property specified in § 67-8-303(a)(2) transferred by the decedent by deed of trust in which the decedent reserved to the decedent, alone or in conjunction with others, powers of revocation, alteration or amendment, upon the exercise of which such property would revert to the decedent, to the extent of the value of such property subject to such powers and with respect to which such powers remained unexercised.

 

You should be very skeptical of any revocable or living trust product that claims to remove the property from the taxable estate.  Additionally, keep in mind that in Tennessee the Inheritance Tax will be abolished effective January 1, 2016.  Further the exemption for the Federal Estate tax is currently at $5,340,000.00 so very few people in fact actually need to worry about Federal Estate tax.  Fear of this tax often drives people to complicated trust products or expensive estate tax avoidance packages, however, this is usually unnecessary when simplicity would be the better path to take, when all things are considered.  I preach simplicity in Tennessee estate planning because often people do not follow through with the more complicated product designs and 99% (or more) of the population simply does not need complicated estate planning techniques.

 

Follow me on Twitter at @jasonalee for updates from the Tennessee Wills and Estates blog.

TAGS: Tennessee Inheritance Tax, Taxes, Federal Estate Tax
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Jason A. Lee is a Member of Burrow Lee, PLLC. Contact Jason at 615-540-1004 or jlee@burrowlee.com for an initial consultation on wills estate planning and probate issues.

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Tennessee Wills and Estates Blog
Jason A. Lee, Member of Burrow Lee, PLLC
611 Commerce Street, Suite 2603
Nashville, TN 37203
Phone: 615-540-1004
E-mail: jlee@burrowlee.com

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