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Tennessee Now a Good ‘Place to Die’ in 2016

Posted on: November 24th, 2015
estate planning relocationOver the past few years, Forbes compiled an annual list of locations ‘Where Not to Die’ across America. The report ranked states with regard to estate and inheritance taxes and exemptions. Last year, two of the states TrustCounsel’s estate planning and tax attorneys serve appeared on the list: New York and Tennessee. However, Tennessee is absent on the most recent report.

New York’s reputation for high taxes and unfavorable tax requirements continues to preserve its spot on the ‘Where Not to Die’ list for 2016. Our firm outlines several key New York tax changes that occurred over the past year. The estate tax applies to amounts exceeding $3,125,000 for decedents with dates of death between April 1, 2015 through March 31, 2016, and $4,187,000 for decedents with dates of death between April 1, 2016 and March 31, 2017. New York’s exemption will increase annually until 2019 until it equals the federal estate tax exemption amount. Lawmakers are considering spousal portability for the state estate tax, which is not presently available under current law. No state inheritance tax is required as of this writing.

Tennessee legislators passed a slow annual reduction of the state estate tax in 2012, with a repeal slated for the 2016 tax year. The forthcoming tax law change has helped Tennessee to leave the list of ‘Where Not to Die.’ For the 2015 tax year, Tennessee’s estate tax exemption is $5,000,000 and as of January 1, 2016 it will be repealed. Like New York, no state inheritance tax is required.

Individuals residing in a jurisdiction that offers a favorable tax environment have opportunities to preserve wealth for future generations. Nevertheless, those who live in jurisdictions that impose state estate and inheritance taxes can create opportunities for themselves to preserve their estates despite the unfavorable tax climate. Trusts are powerful asset protection tools that can be structured to provide tax benefits upon the settlor’s death. Assets held in certain irrevocable trusts pass directly to trust beneficiaries and are not included in one’s taxable estate, which can provide a significant tax savings. Additionally, properly structured gifts made to the trust can take advantage of federal gift tax exemptions, further maximizing tax savings. 

One type of trust that is particularly attractive in Tennessee is a Domestic Asset Protection Trust (DAPT), an irrevocable trust with added creditor protections. Just over a dozen states have statutes governing DAPTs. For the past two years, Tennessee ranked #3 nationally as the best state for creating and maintaining these trusts. 

Many people consider the tax-friendly environments of other states before choosing a retirement destination. However, taxes are not the only matter to address when researching states. Individuals who intend to or who have recently relocated for retirement or other reasons should review estate planning documents in their new jurisdiction. Wills, powers of attorney, trusts, and other crucial estate planning documents may need to be revised in order to comply with the laws in the new jurisdiction. Many years of careful planning could be lost if these documents are not reviewed and revised properly.

By Attorney Samantha Reichle

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