Wednesday, September 4, 2019
A common goal of estate planning is avoiding the federal estate tax as well as a state estate tax, if applicable. Historically, the federal estate tax was set at a very low level, consequently making proper asset protection a necessity. But now the federal estate tax exemption amount is set at $11.4 million for an individual and $22.8 million for a married couple, and since 2016 Tennessee no longer has an inheritance tax. However, there are other tax oriented goals of proper estate planning.
Tennessee is one of the 41 states that are not community property states. Instead, it is a common law state. In 2010, the Tennessee legislature enacted the Tennessee Community Property Trust Act which allows assets in the trust to be treated as if they were in a community property state. Upon the death of the first spouse, both spouses’ interests receive a basis increase to the current fair market value.
If a lower tax bill is not appealing enough, additional advantages of a community property trust include:
- It is revocable so assets can be pulled out of the trust at any time.
- At both the first and second death, trust assets avoid probate and any associated costs while keeping all financial information private.
- The trust can hold all types of assets including developed or undeveloped real estate, business interests, stocks, bonds, mutual funds, and many other investments.
- A community property trust can protect an asset from becoming a marital asset in a second (or third, etc.) marriage.
See Cliff Taylor, Estate Planning in Tennessee: Could You Benefit From a Community Property Trust?, Biz Journal, September 4, 2019.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.