Summary: For 2026, the federal estate tax exemption starts at $15 million per person, or $30 million for a married couple. Tennessee does not have a separate estate tax, inheritance tax, or gift tax. Many Nashville families will never owe a dollar of estate tax. Estate tax planning matters most for families with estates above the federal tax exemption. Below it, a trust may still keep your estate out of probate court and could reduce your family’s capital gains bill.
Key Takeaways:
- The 2026 number: The federal exemption is $15 million per person and roughly $30 million for a married couple, and it is now permanent and indexed to inflation.
- Tennessee adds nothing: The state has no estate tax, no inheritance tax, and no gift tax, so you are measured against the federal line only.
- Revocable trusts don’t cut estate tax: If you can still change it and control it, the law still counts those assets as yours.
- Irrevocable trusts can: Stepping back from control could move the asset, and all of its future growth, outside your taxable estate.
- A Tennessee-only tool: A community property trust can give a surviving spouse a full basis step-up and erase a capital gains bill when selling the family home.
The federal estate tax may worry many Nashville families. For anyone who dies in 2026, it doesn’t touch the first $15 million, according to the IRS inflation adjustments for tax year 2026. A married couple can pass roughly $30 million. Tennessee stopped collecting its inheritance tax entirely after 2015, and its gift tax had already ended in 2012.
If estate tax is the worry that brought you here, start with the number. Add up what you own and any taxable gifts you have already made.
From there, the job of the trust depends on what the total is. Near or above the federal exemption, certain irrevocable trusts can move assets and future growth outside the taxable estate.
Below it, a revocable trust can keep properly transferred assets out of probate and set the rules for who manages them. Tennessee married couples may also have a separate basis-planning option for appreciated property.
Will Your Family Actually Owe Estate Tax?
If your taxable estate remains below your available federal exemption, it will not owe federal estate tax. For someone who dies in 2026, the exemption is $15 million. A married couple may be able to preserve close to $30 million through portability or other planning. Amounts above the available exemption can be taxed at 40%.
Tennessee’s inheritance tax was fully phased out for anyone who died on or after January 1, 2016. The state gift tax was repealed for gifts made from January 1, 2012 onward.
Working out where you stand takes just a few minutes. Add up:
- Your home and any other real estate, at what it would sell for today
- Retirement accounts and investments, including the ones you rarely check
- Any business interest, even a small stake
- The death benefit on your life insurance, which counts in full
That last one surprises almost everyone. The payout belongs to your estate for tax purposes even though you never see a cent of it. Most families finish that math and exhale.
How Estate Tax Planning With a Trust Actually Works
An irrevocable trust lowers estate tax by changing who owns the asset. When you make a completed gift into the trust and step back from control, those assets stop being counted as yours. Everything they grow into afterward grows outside your estate.
That second part is where the real benefit sits.You’re moving decades of future growth out of your estate with it.
Picture a rental property in Green Hills worth $2 million. Move it into the right trust now, and it’s worth $5 million when your children inherit it, the extra $3 million grows somewhere the estate tax can’t follow.
The one condition is that stepping back has to be genuine. Keep a string attached, a right to the income or a power to take it back, and the law treats the asset as though it never left.
Control and tax savings pull in opposite directions. Which matters more to you is a personal decision, and that trade sits at the heart of estate tax planning with trusts.
Revocable vs. Irrevocable Trusts: Which One Lowers Your Estate Tax?
A revocable living trust does not lower your federal estate tax. You keep the right to change it, undo it, and spend everything in it, so the law still treats those assets as yours. It’s a genuinely useful document. Tax savings just aren’t what it’s for.
This is the most common mix-up we see at Hazard Law, and an easy one to make. A family arrives with a living trust drawn up years ago, sure the tax question was handled. It wasn’t, and it rarely needed to be.
|
Revocable living trust |
Irrevocable trust |
|
|
Can you change it? |
Yes, any time |
Generally no |
|
Reduces federal estate tax? |
No |
Yes, when properly structured |
|
Shields assets from creditors? |
No |
Often yes |
|
Avoids probate? |
Yes, for assets properly placed in the trust |
Yes |
|
Who controls the assets? |
You do |
The trustee does |
Whatever you give up on the left is what buys you the right. For most Nashville families, the left column is the right choice.
Other Trusts That May Lower Estate Tax
Not every taxable estate needs one of these trusts. The right one depends on what you own and what you need it to do.
Irrevocable Life Insurance Trust (ILIT)
A $4 million life insurance policy adds $4 million to your taxable estate. An ILIT owns the policy instead of you, so the payout reaches your family without adding to the tax.
Spousal Lifetime Access Trust (SLAT)
One spouse gifts assets into a trust that still benefits the other. The money leaves your estate without leaving your household, which is why couples find it appealing. Divorce, or the death of the beneficiary spouse, changes that picture, and you deserve to hear that plainly before you sign.
Grantor Retained Annuity Trust (GRAT)
You put in an asset you expect to grow and take back a fixed annual payment. Whatever growth beats the IRS assumed rate passes to your children at little or no transfer tax cost. GRATs suit a business on the verge of a jump in value.
Charitable Remainder and Charitable Lead Trusts
You give to a cause you already care about, take an income stream or a deduction now, and reduce the taxable estate along the way. For families who were giving anyway, it does two jobs.
A Tennessee Community Property Trust May Reduce Capital Gains
Tennessee spouses can place certain assets in a qualifying community property trust. When the first spouse dies, the property may receive a step-up on the basis of both spouses’ shares, rather than only the deceased spouse’s share.
Consider a home purchased for $180,000 and worth $800,000 when one spouse dies:
- Without the trust: The combined basis may rise to approximately $490,000.
- With the trust: The combined basis may rise to $800,000, potentially reducing capital gains if the survivor sells soon afterward.
The trust must satisfy the Tennessee Community Property Trust Act, including its qualified-trustee requirement. Because the IRS has not specifically confirmed the double step-up for Tennessee’s elective system, couples should review the potential benefit and tax uncertainty with their attorney.
Portability Can Preserve a Spouse’s Unused Estate Tax Exemption
In 2026, each person has a $15 million federal estate and gift tax exemption. If the first spouse dies without using the full amount, the executor can elect portability by filing Form 706. This allows the survivor to use the deceased spouse’s remaining exemption, potentially giving the couple close to $30 million in combined exemption capacity. The election is not automatic, even when no estate tax is due. The IRS confirms the 2026 amount and portability rules.
What a Trust Still Does Below the Estate Tax Line
If your estate sits below the federal line, the trust usually has a different job. It can keep funded assets out of probate, keep distribution terms private, and put someone in charge if you can no longer manage the property yourself. A Tennessee community property trust is the exception because it may carry a separate basis benefit for married couples.
Probate is the clearest example. In Davidson County, the Seventh Circuit Court, Probate Division, handles estate administration. A case means court filings, deadlines, and a public record while the estate is being settled.
A revocable trust can keep property out of that process, but only after the property has actually been moved into it. A signed trust does not pull in the house, bank account, or investment on its own. Anything left outside may still need probate.
Beyond probate, a trust gives you:
- More privacy. The trust’s distribution terms usually stay out of the public probate file.
- Your timing. A child can receive money at 30, or in stages, instead of everything at 19.
- Someone ready to step in. A successor trustee can manage trust property during incapacity without waiting for a conservatorship over those assets.
Those are not estate-tax benefits. They matter long before an estate reaches $15 million.
Estate Tax Planning Questions Nashville Families Ask
Does a revocable living trust reduce estate taxes in Tennessee?
No. Because you can amend or revoke it at any time, the law still treats those assets as yours, and they stay in your taxable estate. A revocable trust is still well worth having for probate avoidance, privacy, and incapacity planning. Tax savings just aren’t on its list.
Do I pay tax on an inheritance I receive in Tennessee?
Generally not. An inheritance is not treated as taxable income by the IRS, and Tennessee’s inheritance tax ended for deaths on or after January 1, 2016. Two things can still be taxed. Withdrawals from an inherited retirement account are usually income, and selling inherited property later can trigger capital gains tax.
What happens to my Tennessee trust if I move to another state?
Your trust stays valid, and your documents keep working. The tax treatment may not travel as cleanly, especially with a community property trust, since your new state may not recognise the community property character of those assets. A move out of Tennessee is one of the best reasons to have your plan looked at again rather than assumed to be fine.
Does putting my house in a trust change my property taxes in Nashville?
Usually not. Moving your home into a revocable living trust is not a sale, so it doesn’t reset your assessment. Davidson County tax relief and tax freeze programs have their own ownership rules, so tell the Trustee’s office about the transfer rather than assuming it carried over.
Start Your Estate Tax Planning With a Nashville Attorney
Estate tax planning starts with a number: what your estate is worth today and what it may be worth later. Add the house, retirement accounts, investments, life insurance, and business interests. That total shows whether the federal exemption is a real concern or whether the better opportunity lies in basis planning or probate avoidance.
Hazard Law builds estate plans around that answer. The plan may preserve portability, use a Tennessee community property trust for appreciated assets, or leave complex tax tools out because they would add cost without helping your family. Schedule a consultation to review the numbers before deciding what belongs in your plan.
