There is no Tennessee inheritance tax on estates of people who died on or after January 1, 2016. The state repealed the tax after a phased reduction, so if you are inheriting from a Tennessee resident today, you owe the state nothing on what you receive.1TN.gov. Inheritance Tax What can still cost you is federal estate tax on very large estates, income tax on inherited retirement accounts, and the cost of taking the estate through probate.
Deaths Before 2016 Still Follow the Old Rules
The repeal is not retroactive. If you are handling an estate for someone who died before January 1, 2016, and the estate exceeded the exemption threshold in effect for that year, the old inheritance tax rules still apply and the Tennessee Department of Revenue still handles those matters.1TN.gov. Inheritance Tax
The exemption climbed each year during the phase-out: $1 million through 2012, $1.25 million in 2013, $2 million in 2014, and $5 million in 2015.2TN.gov. Notice 12-13 Inheritance Tax Rates ran from 5.5% to 9.5%. Returns were due within nine months of death, spousal transfers were fully exempt, and the tax was paid out of the estate before distributions to heirs.3TN.gov. Due Dates and Tax Rates – Inheritance Tax If you are working on one of these older estates and the numbers are large, use an attorney who knows the pre-2016 law.
Federal Estate Tax Can Still Apply
The federal estate tax is separate from any state inheritance tax and still applies to Tennessee estates that are large enough. For someone who dies in 2026, the federal exemption is $15 million per individual, effectively $30 million for a married couple using portability.4Internal Revenue Service. Frequently Asked Questions on Estate Taxes That $15 million figure came from the One, Big, Beautiful Bill Act signed into law on July 4, 2025, which permanently raised the exemption and indexes it for inflation starting in 2027.5Internal Revenue Service. What’s New — Estate and Gift Tax
Estates above the exemption face a graduated tax that starts at 18% and reaches 40% on amounts more than $1 million over the exemption. The executor files IRS Form 706 within nine months of death, with an automatic six-month filing extension available on request. The tax itself is still due at the nine-month mark.6Internal Revenue Service. Filing Estate and Gift Tax Returns
Most Tennessee families are well under $15 million. But the gross estate includes life insurance proceeds, retirement accounts, and property held in certain trusts, so people with significant real estate, business interests, or investment portfolios should add everything up before assuming they are clear.
Portability for Surviving Spouses
When a married person dies without using their full $15 million federal exemption, the surviving spouse can claim the unused portion. It is called the Deceased Spousal Unused Exclusion, or DSUE. If the first spouse dies with a $4 million estate, the survivor can carry over $11 million, giving a combined shield of $26 million.
Portability is not automatic. The executor of the first spouse’s estate must file Form 706 to elect it, even when the estate is small enough that no return would otherwise be required. The filing window is nine months from death, extendable by six. Executors who miss that deadline may still file within five years under a special IRS procedure, but that is a fallback, not a plan. Once the deadline finally closes, the election is gone for good.7Internal Revenue Service. Instructions for Form 706
Stepped-Up Basis on Inherited Property
Inheriting appreciated property comes with a valuable tax break. Your cost basis for capital gains purposes is generally reset to the asset’s fair market value on the date of death, not what the decedent originally paid.8Internal Revenue Service. Gifts and Inheritances
Suppose your parent bought a Nashville house for $120,000 in 1990, and it was worth $650,000 when they died. Had they sold it during their lifetime, they could have owed capital gains tax on as much as $530,000 of appreciation. Because you inherited it, your basis is $650,000. Sell it for $660,000 and you owe tax on only $10,000. Sell for less than $650,000 and you may have a deductible loss.
If an estate tax return is filed, the basis you use when you later sell must be consistent with the value reported on that return. The IRS finalized regulations in 2024 requiring this consistency, and inconsistency can trigger accuracy-related penalties.5Internal Revenue Service. What’s New — Estate and Gift Tax Hold onto the estate’s valuation records even if no federal tax was owed.
Inherited Retirement Accounts Are Taxed as Income
Inherited IRAs and 401(k)s do not get a stepped-up basis. Withdrawals from a traditional inherited retirement account are taxed as ordinary income, the same way they would have been for the original owner. How fast you have to withdraw depends on your relationship to the person who died.
A surviving spouse has the most flexibility. Spouses can roll the account into their own IRA and treat it as their own, delaying withdrawals until their own required minimum distribution age. Most other beneficiaries face the 10-year rule: the account must be emptied by the end of the tenth year after the year the owner died.9Internal Revenue Service. Retirement Topics – Beneficiary Certain eligible designated beneficiaries, including minor children, disabled individuals, and beneficiaries no more than ten years younger than the decedent, may qualify for exceptions.
The 10-year clock forces real planning. Draining the account in year ten can push you into a much higher tax bracket. Spreading withdrawals across the decade often produces a lower total tax bill, though your other income drives what actually works.
Annual Gift Tax Exclusion for Lifetime Planning
If you are on the other side of this, planning to reduce the size of your own future estate, the federal annual gift tax exclusion lets you give up to $19,000 per recipient in 2026 without filing a gift tax return or eating into your $15 million lifetime exemption.5Internal Revenue Service. What’s New — Estate and Gift Tax Married couples can give $38,000 per recipient by splitting gifts. Larger gifts count against your lifetime exemption but are not separately taxed unless that exemption is used up.
Tennessee Probate Costs You Should Expect
No inheritance tax does not mean no cost. Most Tennessee estates still go through probate, the court process of validating a will, paying debts, and distributing what is left. A simplified small estate process is available when the probate property is worth $50,000 or less.10Tennessee Courts. Small Estates Larger estates require full administration.
Court filing fees vary by county. In Davidson County (Nashville), the fee to file a petition to probate a will or for letters of administration is $334.50 as of January 2026, and the small estate petition costs the same. Other counties differ, so check with your local clerk. Beyond filing fees, expect charges for certified copies, legal notices, and possibly a surety bond.
Executors are entitled to reasonable compensation for their work, subject to court approval, with no fixed percentage in the statute. The probate court sets what is reasonable based on the complexity of the estate and the work involved.11Justia. Tennessee Code 30-1-407 – Compensation for Services Attorney fees are usually the biggest expense, especially when there is real estate, a business, or a dispute among heirs.
Assets That Skip Probate Entirely
Some assets pass to you without going through court, and knowing which ones can save real time and money. Life insurance policies, retirement accounts, and payable-on-death bank accounts transfer directly to the named beneficiary. Property held in joint tenancy with right of survivorship passes automatically to the surviving owner. Assets in a properly funded revocable living trust also avoid probate.
Beneficiary designations override the will. An outdated designation on a 401(k) or life insurance policy controls who gets the money, even if the will says otherwise. If an ex-spouse is still listed on a retirement account, they receive the funds no matter what a newer will directs. Reviewing those designations periodically is the single simplest piece of estate planning, and the one people most often skip.