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                      INSTRUCTIONS FOR TENNESSEE INHERITANCE TAX RETURN
                             (for estates of decedents dying on or after January 1, 1990)

GENERAL INSTRUCTIONS                                                the Inheritance Tax return.
                                                                         When completed, the return must be permanently fas-
The Inheritance Tax Statute.                                        tened together with all sheets in proper order.  Any suitable
     The Tennessee Inheritance Tax is imposed by Part 3 of          type of paper fastener may be utilized for this purpose,  Or-
Chapter 8, Title 67, Tennessee Code Annotated (See the new          dinary wire staples are recommended for a return of aver-
codification for Inheritance Tax in Volume 12).  An Inherit-        age size.  All pages provided must be included.
ance tax is a tax upon the privilege of receiving property by            If there is insufficient space for all entries under any of
transfer because of a decedent's death.                             the printed schedules, additional sheets of the same size
                                                                    may be inserted in the proper order of the return.  All infor-
Filing Requirement.                                                 mation requested must be furnished.  The questions on each
     If the gross estate of a resident decedent is less than the    schedule must be answered; if the decedent owned no prop-
maximum single exemption allowed by T.C.A. Section 67-8-            erty of a class specified for the schedule, the word "None"
316, the representative of the estate is not required to file an    should be written across the schedule.
Inheritance Tax Return.  If the gross estate of a resident               The items should be numbered on each schedule; a sepa-
decedent is greater than the exemption an inheritance tax           rate enumeration should be used for each schedule, and
return must be filed by the personal representative of the          the total for each schedule should be shown at the bottom.
estate.                                                                  The filing of this form will not be considered the filing of
                                                                    the complete return as required by the statute unless all the
Place for filing.                                                   information indicated thereon is set forth.
     The return must be filed with the Tennessee Department              Rounding off to whole-dollar amounts-- if you wish, the
of Revenue, Andrew Jackson State Office Building, 500               monetary items on your return may be shown as whole-
Deaderick Street, Nashville, Tennessee 37242-0600.  You             dollar amounts.  This means you eliminate any amount less
may call (615) 532-6438 if you have any questions.                  than fifty (50) cents and increase any amounts fifty (50) cents
                                                                    through ninety-nine (99) cents to the next higher dollar.
Time for filing.
     The return is due nine (9) months after the date of the        Signature and verification.
decedent's death, unless an extension of time is granted by              If there is more than one personal representative, all must
the Department of Revenue pursuant to T.C.A. Section 67-8-          verify and sign the return.  Such persons are responsible for
409.                                                                the return filed and incur liability for taxes under T.C.A. Sec-
                                                                    tion 67-8-423.  If there is no executor or administrator ap-
Payment of tax.                                                     pointed, qualified and acting in Tennessee, then the person
     The tax is due nine (9) months after the date of decedent's    in possession must verify and sign the return.
death and must be paid within such period unless an exten-
sion of time for payment thereof has been granted or permis-        Supplemental Documents.
sion for payment of tax in installments has been granted.                If the decedent died testate, file a copy of the will with
Check or money order in payment of the tax should be made           the return.  Other supplemental documents should be sub-
payable to "Tennessee Department of Revenue".                       mitted.  Examples include Form 712 for insurance policies,
                                                                    trust and power of appointment instruments, and other docu-
Completion of return.                                               ments referred to in the instructions for each schedule.  If
     The first four pages of the Inheritance Tax return are to be   you do not file these documents with the return, the pro-
completed in its entirety.  If a Federal Estate Tax return (Form    cessing of the return will be delayed.  All such supplemental
706) was filed attach copies of schedules A thru K, M &O, in        information must be attached at the end of the completed
lieu of the corresponding schedules.                                form, not intermingled with individual schedules.
     If you did not file a federal return the following steps are
recommended.                                                        Valuation.
(1) Complete Schedules A thru K, M and O.                                Generally, all of decedent's property, real and personal,
(2) Place the total of each schedule on the applicable line         is included on the inheritance tax return at its full and true
     of the Recapitulation Schedule.                                value at the date of death or at the alternate valuation date.
(3) Enter the statutory exemption on the appropriate line           (See Alternate Valuation discussed later).  Real property
     on the Recapitulation Schedule.  Subtract the exemp-           used in farming or other closely held businesses may be
     tion to determine the Net Taxable Estate.                      eligible for a reduced valuation for estate tax purposes.  (See
(4) Compute the Tax.  See rate schedule at "Computa-                Special Use Valuation discussed later).
tion of Tax," and enter the amount on the appropriate
lines of the return.                                                Alternate Valuation
(5) Complete General Information.                                        The executor may elect to use the alternate valuation
(6) If a Federal Estate Tax Return (Form 706) is filed, it is       method.  The election must be made on the first page of the
     recommended that a complete copy is submitted with             return within 9 months of the date of death or within a timely
                                                                  1                                                  Rev. (3-14)

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requested extension of time granted for filing the return. In time, such as patents, leaseholds, estates for the life of an-
general, the object of T.C.A. Section 67-8-412(b) is to per- other, or remainder interest, the value shown under the head-
mit a reduction of the tax liability if the total value of the ing "Alternate Value" must be the adjusted value, i.e., the
estate has decreased. Once the election is made, it is irre- value as of the date of death with an adjustment reflecting
vocable, and it applies to all of the assets in the estate. It any difference in its value as of the later date not due to mere
cannot be used for only part of the assets. lapse of time. Under the heading, "Value at date of death"
If the alternate valuation method is elected, all property the amount of the principal and the amount of includible in-
in the estate must be valued according to the following rules: come as of the date of death must be entered separately.
(1) Property distributed, sold, exchanged, or otherwise All of the information indicated on the Inheritance Tax
disposed of within six (6) months after decedent's Return must be supplied. Statements as to distributions,
death, is valued as of the date of such distribution, sales, exchanges, and other dispositions of the property within
sale, exchange, or other disposition; the six (6) month period after the decedent's death must be
(2) Property not distributed, sold, exchanged, or other- supported by evidence. If the court issues an order of distri-
wise disposed of is valued as of the date six (6) months bution during that period, a copy of the order must be submit-
after decedent's death; ted as part of the evidence. The commissioner may require
(3) Any property, interest, or estate "affected by a mere the submission of such additional evidence as is deemed
lapse of time" is valued as of date of decedent's death. necessary.
However this is adjusted for any difference in value
not due to mere lapse of time as of the date 6 months Special use valuation.
after decedent's death, or as of the date of disposi- You may elect the valuation authorized by T.C.A. Sec-
tion, whichever first occurs. tion 67-8-412(c) by checking "yes" in the appropriate box on
Interest accrued to the date of decedent's death on bonds, the face of the return and completing and attaching Schedule
notes and other interest-bearing obligations constitutes prop- A-Worksheet for Property Valued for Special Use Purpose-
erty of the gross estate on the date of his death and is also and its required attachments. The worksheet and its addi-
to be included in the alternate valuation. Rent accrued to tional statements must be filed with this form for this election
the date of the decedent's death on realty or personalty con- to be valid. See "Instructions for Worksheet-Property Val-
stitutes property of the gross estate on the date of death ued for Special Use Purpose" discussed later.
and is also to be included in the alternate valuation.
Outstanding dividends declared to stockholders or record
on or before date of the decedent's death constitute prop-
erty of the gross estate on the date of death and are also to INSTRUCTIONS FOR RECAPITULATION
be included in the alternate valuation. Ordinary dividends
declared to stockholders of record after the date of Gross estate.
decedent's death do not constitute property of the gross Lines 1 through 9- An entry must be made on each of
estate at the date of death and are also to be excluded from lines 1 through 9. If the gross estate does not contain any
the alternate valuation. If dividends are declared to stock- assets of the type specified by a given line, enter "-0-" on
holders of record after the date of decedent's death with the that line. An entry of "-0-" on any of lines 1 through 9 is a
effect the shares of stock at the subsequent valuation date statement by the executor, made under penalties of perjury,
do not reasonably represent the same property existing at that the gross estate does not contain any includible assets
the date of death, such dividends are to be included in the covered by that line. Do not enter any amounts in the "Alter-
alternate valuation. nate Value" column unless you elected alternate valuation.
In every case where the election is exercised, the return
must include (1) an itemized description of all property in- Deductions.
cluded in the gross estate on the date of decedent's death, Lines 11 through 14- Enter here the total for each corre-
(2) an itemized disclosure of all distributions, sales, ex- sponding schedule. If there is no deduction enter "-0-" on
changes, and other dispositions of such property during the that line.
six (6) month period after the decedent's death, together
with the dates thereof, and (3) the value of each item of Statutory exemption.
property determined as previously explained. The forego- For the purpose of determining the net taxable estate,
ing information must be shown under the appropriate col- there shall be allowed against the estate a maximum single
umns of each schedule. Under the column headed "De- exemption. In the case of resident decedent's dying between
scription" a brief statement for each item must be shown January 1, 2006 and December 31, 2012 the allowable ex-
explaining the status or disposition governing the alternate emption is $1,000,000; in 2013 the allowable exemption is
valuation date, such as, "Not disposed of within six (6) months $1,250,000; in 2014 the allowable exemption is $2,000,000
following death," "Distributed," "Sold," "Bond paid on matu- and in 2015 the allowable exemption is $5,000,000. In 2016
rity," etc. Each item of principal and includible income must and thereafter no inheritance tax is imposed.
be entered separately. Under the heading "Alternate Value"
the amount of the principal and the amount of includible in-
come must be separately shown. In the case of any inter-
est or estate, the value of which is affected by mere lapse of
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Computation of tax.                                                                 CALCULATION 1
     The rate schedule is given below:
                                                                Gross Tn. Estate          Available SDTC = Tn. Estate Tax
Column 1       Column 2       Column 3      Column 4            Gross Federal Estate     X
TAXABLE AMOUNT TAXABLE AMOUNT TAX ON AMOUNT RATE OF TAX ON
                              IN COLUMN 1   EXCESS OVER
                                            AMOUNT IN
OVER           NOT OVER                     COLUMN 1                                CALCULATION 2
                                                                Step 1
                                            (PERCENT)           State Death Tax credit - All inheritance tax paid = amount to be
$  40,000.00   $  40,000.00   $  2,200.00   5.5                 apportioned
$240,000.00    $240,000.00    $15,200.00    6.5
$440,000.00    $440,000.00    $30,200.00    7.5
                                            9.5                 Step 2
                                                                Gross Tn. Estate   X   amount to be apportioned = Tn. Estate Tax
                                                                Gross Federal Estate
Nonresident Estates
                                                                Credit for previously paid inheritance tax.
     Tennessee Code Annotated, Section 67-8-303 imposes
                                                                     If property within this decedent's estate was subject to
a tax on a transfer from a non-resident of this state for (a)
                                                                and incurred an inheritance tax imposed by this state within
real property situated within this state, or (b) tangible per-
                                                                the five (5) years immediately preceding decedent's death,
sonal property which has an actual situs within this state.
                                                                a credit is allowable as to a portion of the actual amount of
     Deductions which are properly chargeable against the
                                                                tax previously paid against the amount of tax owed on the
Tennessee property will be allowed.
                                                                present transfer.
     The statutory exemption for a non-resident estate is ap-
                                                                     The credit for previously paid tax shall be the lesser of
portioned in the ratio that the gross value of the Tennessee
                                                                the result of the following two (2) calculations and is to be
estate bears to the value of all property which would have
                                                                entered in the designated space under "Computation of Tax."
been included in the gross estate if the decedent had been
                                                                A computation of the credit must be attached to the return.
a resident of Tennessee.
                                                                                    CALCULATION 1
EXAMPLE
                                                                Total tax paid on               Previous estate's value
1. Gross Estate Everywhere - Real Property located out-
                                                                previous estate exclusive       of property transferred
side of Tennessee = Gross Estate if decedent was a
                                                                of interest and penalty       X to present estate
Tennessee resident
                                                                                                net estate of
2. Tennessee Gross Estate divided by Gross Estate if de-
                                                                                                previous estate
cedent was a Tennessee Resident = Percentage
3. Percentage multiplied by statutory exemption = Non-
                                                                                    CALCULATION 2
Resident Statutory Exemption
4. Gross Tennessee Estate - Deductions = Taxable
                                                                Total tax due on                Previous estate's value
Tennessee Estate
                                                                present estate exclusive        of property transferred
5. Taxable Tennessee Estate - Non-Resident Statutory
                                                                of interest and penalty       X to present estate
Exemption = NET TAXABLE ESTATE
                                                                                                net estate of
                                                                                                present estate
Tennessee estate tax.
     The Tennessee Estate Tax is imposed by Part 2 of Chap-     Credit for previously paid gift tax.
ter 8, Title 67, Tennessee Code Annotated.  The purpose of           A credit is allowable only against the inheritance tax pay-
the Tennessee Estate Tax is to supplement the inheritance       able on the decedent's entire estate, in an amount equal to
tax to assure the state secures a total tax at least equal to   the sum of all Tennessee gift taxes paid by the decedent or
the "State Death Tax Credit" allowed by the federal govern-     the decedent's estate for transfers made within the three (3)
ment on the Federal Estate Tax Return pursuant to I.R.C.        years immediately preceding decedent's death which have
Section 2011.  Thus, the Tennessee Estate Tax is equal to       been included in the estate.
the amount by which the credit against the federal estate            This credit for previously paid gift taxes is to be entered
tax exceeds the inheritance tax.  If the "State Death Tax       in the designated space under "Computation of Tax."  A com-
Credit" (SDTC) exceeds the inheritance tax, the difference      putation of the credit must be attached to the return.
is the Tennessee Estate Tax.  The amount of the Tennessee
Estate Tax must be entered in the Computation of Tax on         Credit for power of appointment.
page 1 of the return.                                                A credit is allowable for certain property included in this
     In the case of a non-resident owning real property or      return because of decedent possessing a general power of
tangible personal property in Tennessee or a resident dece-     appointment over the property.  See the instructions for
dent with real property or tangible personal property outside   Schedule H.  Enter the credit amount in the designated space
Tennessee the available SDTC is computed pursuant to            under "Computation of Tax."  A computation of the credit
calculation 1.  Calculation 2 should be used when inherit-      must be attached to the return.  This credit is not allowable
ance tax has been paid in multiple states (verification of tax  for the transfer of any property for which credit is allowable
paid must be provided).                                         for previously paid inheritance tax.  Also, this credit does not
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impair or reduce Tennessee Estate Tax due under T.C.A. gross estate, in which case no deduction for the indebted-
Section 67-8-201,et. seq. ness is allowable under Schedule K.
Real property which the decedent has contracted to pur-
Interest.
chase should be listed in this schedule. The full value of the
All taxes not paid within nine (9) months after the death
property and not the equity must be extended in the value
of the decedent will bear interest at the statutory rate per
column. The unpaid portion of the purchase price should
annum, which interest cannot be waived or excused.
be deducted under Schedule K of this return.
The basis for the return values should be stated. If based
Penalty.
upon appraisals, copies of such appraisals, together with an
In addition to interest a penalty will accrue at the rate of
explanation of the basis of the appraisals, should be attached
5% per month or part thereof, to a maximum of 25%, for
to the return.
failure to either file the return or pay the tax, but not both.
The "assessed value for taxation" should be the 100%
In no event shall the total penalty for failure to pay the
value shown on the records of the county tax assessor for
tax shown to be due on the return as filed, and timely pay
purposes of the county property tax.
additional assessed tax within 30 days, exceed 25% of the
total tax.
INSTRUCTIONS FOR WORKSHEET - PROPERTY
VALUED FOR SPECIAL USE PURPOSE.
INSTRUCTIONS FOR GENERAL
INFORMATION SCHEDULE
The personal representative of an estate may elect to
value qualified real property included in decedent's estate
Furnish all information requested in items one (1) through
and devoted to farming, or used in a closely-held business,
seven (7).
on the basis of its actual use for these purposes. Once
made, the election is irrevocable. The election must be made
Item 7
on the first inheritance tax return filed. The return does not
Name.- Enter the name of each individual, trust or es-
have to be filed on time for the election to apply. The per-
tate who received (or will receive) benefits from the estate
sonal representative, and any other person, shall be subject
directly as an heir, donee or devisee, or indirectly as benefi-
to all conditions and limitations set out in I.R.C. Section 2032A
ciary of an annuity or insurance policy, as shareholder of a
with the exception of the provisions relative to material par-
corporation or partner of a partnership.
ticipation. In addition, a lien shall arise in favor of the state
Amount.- Enter the amount actually distributed (or to be
comparable to that arising in favor of the United States un-
distributed) to each beneficiary including transfers during
der I.R.C. Section 6324B, and the lien shall be subject to
decedent's life from Schedule G required to be included in
the filing and priority provisions of T.C.A. Section 67-1-1403.
the gross estate.
If the election is made, both a full and true valuation at
Disclaimers.- If property passes to a person by result of
the time of decedent's death and the special use valuation
a qualified disclaimer, a copy of the disclaimer must be at-
of the subject property are required. The maximum valua-
tached to the return. The copy of the disclaimer must clearly
tion differential allowable is $750,000. To make the election,
show the date(s) filed and recorded.
the personal representative must:
(1) Check "yes" in the "Election of Special Use Valuation"
INSTRUCTIONS FOR SCHEDULE A.-
box on the face of the return.
REAL ESTATE
(2) Sign the tax return on front page.
Real estate should be so described and identified that
(3) Prepare the "Worksheet Property Valued for Special
upon investigation by a tax auditor it may be readily located
Use" in full.
for inspection and valuation. For each parcel of real estate
(4) Attach the following documents to the tax return:
there should be given the area and, if the parcel is improved,
(a) Both the full and true valuation and the special
a short statement of the character of the improvements.
use valuation appraisals.
For city or town property, state the street and number, ward,
(b) A Notice of Election signed by the personal
subdivision, block and lot, etc. For rural property, state the
representative.
acreage as well as the map and parcel numbers for the
(c) Agreement to Special Use Valuation executed by
county within which the property is located.
all parties who have any interest in the property
If any item of real estate is subject to a mortgage with
being valued based on its qualified use.
respect to which the decedent's estate is liable (i.e., if the
The Notice of Election and the Agreement to Special Use
indebtedness is enforceable against other property of the
Valuation must set forth certain data. The data required for
estate not subject to such mortgage, or if the decedent was
the Notice of Election is set out in I.R.S. Regulation
personally liable therefor), the full value of such property
20.2032A-8(a)(3). The data required for the Agreement to
must be extended in the value column. The amount of the
Special Use Valuation is generally set out at I.R.S. Regula-
mortgage in any such case should be shown under "De-
tion 20.2032A-8(c). An Agreement form may be obtained
scription" in this schedule, and deduction taken therefor under
by calling (615) 741-4465.
Schedule K. If, however, the decedent's estate is not liable
If a personal representative makes a timely election and
for the amount of the mortgage, only the value of the equity
substantially complies with the federal regulations pertain-
of redemption (or value of the property less the indebted-
ing to the election, the Notice of Election or Agreement to
ness) need be extended in the value column as part of the
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Special Use Valuation may be subsequently modified if:                If no sales occurred within a reasonable period before
(1) The Notice of Election or Agreement to Special Use           and after the valuation date, the full and true value may be
Valuation, as filed, does not contain all required infor-        determined by taking the mean between bona fide bid and
mation, or                                                       ask prices on the valuation date.  If bid and ask prices on
(2) The Agreement to Special Use Valuation, as filed, does       the valuation date are not available but are available for dates
not include the signature of any person required to              within a reasonable period before and after the valuation
enter into the agreement.                                        date, the valuation method described above may be used.
     The personal representative will have a reasonable pe-      If no actual sales prices or bona fide bid and ask prices are
riod of time, but not more than 90 days, after notification of   available on a date within a reasonable period before the
these failures to provide such information or signatures.        valuation date, but are available on a date within a reason-
Substantial compliance with the requirements is not accom-       able period after the valuation date, or vice versa, then the
plished if the personal representative only checks the appli-    mean between the highest and lowest available sale prices
cable election box on the front page of the return.  Both the    or bid and asked prices on that date may be taken as the full
Notice of Election and the agreement must be included with       and true value.
the return.  Types of information that may be supplied after          In valuing stocks and bonds not listed on an exchange,
the initial filing are social security numbers and addresses     but which are dealt in through brokers or which have a mar-
of qualified heirs, written appraisals obtained prior to filing  ket, the full and true value shall be the mean between the
the return, legal description of property, and the designation   high and low sales prices on the valuation date.  If there
of an agent.                                                     were no sales on the valuation date, the full and true value
                                                                 is determined in the same manner as previously described
INSTRUCTIONS FOR SCHEDULE B.- STOCKS AND                         if sales occurred within a reasonable time before and/or af-
BONDS                                                            ter the valuation date.  If quotations are obtained from bro-
                                                                 kers or evidence as to the sale of securities is obtained from
Description.                                                     the issuing companies, copies of the letters furnishing such
     Description of stocks must indicate number of shares,       quotations or evidence of sale must be attached to the re-
whether common or preferred, issue, price per share, and         turn.
exact name of corporation.  If not listed on a stock exchange,
the address of the principal business office, and the state in   Flower bonds
which incorporated must be furnished.  If listed, state princi-       So-called "flower bonds" are marketable United States
pal exchange upon which sold.  Description of bonds must         Treasury Bonds which can be redeemed by a personal rep-
include quantity and denomination, name of obligor, kind of      resentative at par value plus accrued interest to pay federal
bond, date of maturity, interest rate, and interest-due dates.   estate taxes.  Such bonds are to be valued at par value to
State the exchange upon which listed, or if unlisted the prin-   the extent used to discharge federal estate tax liability if they
cipal business office and address of the company.                are acquired after May 30, 1985.  If acquired prior to May
                                                                 31, 1985, such bonds are valued at the quoted "market"
Valuation.                                                       value even though used to pay federal estate taxes.  In list-
     In valuing stocks and bonds listed on a stock exchange,     ing the bonds in the description column of the schedule, the
the mean between the high and low quoted sales prices on         date of purchase must be disclosed.  If part but not all of the
the valuation date is the full and true value per share or       bonds were used to pay federal estate tax, those bonds used
bond.  If the security was listed on more than one exchange,     to pay the tax must be separately listed.
the records of the exchange where the security is princi-
pally dealt should be used.  The personal representative         Closely-Held Stocks.
should observe care to consult accurate records to obtain             Attach the following documents to the return:  (1) Bal-
values of the valuation date.                                    ance Sheets and Income Statements for five accounting
     If there were no sales on the valuation date, but there     years preceding the date of death, (2) statement of the per-
were sales on dates within a reasonable period before and        sonal representative as to all factors considered in deter-
after the valuation date, the full and true value is determined  mining the value, and (3) any appraisals by professional
as follows:  Determine a weighted average of the mean be-        appraisers in determining value.
tween the high and low prices on the nearest date before
the valuation date, and the mean between the high and low        Accrued Dividends.
prices on the nearest date after the valuation.  The average           Dividends payable to decedent or his estate by reason
must be weighted inversely by the respective numbers of          of the fact that on or before the date of decedent's death he
trading days between the sales dates and the valuation date.     was a stockholder of record must be included in the gross
For example, assume the nearest sales took place two trad-       estate as separate items.  Dividends declared on shares of
ing days before the valuation date at a mean sales price of      stock prior to the death of the decedent but payable to the
$10 per share and three trading days after the valuation         stockholders of record on a date after death are not included
date at a mean sales price of $15 per share.  The full and       in the gross estate.  Where the stock is being traded on an
true value is $12 per share determined as follows:               exchange and is selling ex-dividend on the date of decedent's
             (3 x $10) + (2 x $15) = $12                         death the amount of the dividend should not be included in
             5                                                   the gross estate as a separate item but should be added to
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the ex-dividend quotation in determining the fair market value Unpaid interest.
of the stock as of the date of decedent's death. If decedent Interest accrued on savings certificates, accounts, notes
died on a weekend, and the stock began selling ex-dividend and mortgages is includible in the gross estate.
on the following trading day, determine the weighted aver-
age by adding the dividend to the mean of the ex-dividend Contract by decedent to sell land.
quotation. Show name of buyer, date of contract, description of prop-
erty, sale price, initial payments, amounts of installment pay-
Common trust funds. ments, unpaid balance of principal, interest rate, and ac-
For common trust funds, the property to be valued is the crued interest.
participating interest in the fund. A bank administering a
common trust fund must value the assets of the fund at
least quarterly. If the valuation date for the estate is not the INSTRUCTIONS FOR SCHEDULE D-
same as the bank evaluation date, the full and true value INSURANCE ON DECEDENT'S LIFE
must be determined using the same method as is used for
stocks and bonds. If it is necessary to use the weighted Insurance.
average method, the average must be weighted inversely All insurance on decedent's life receivable by or for the
by the respective number of days between the bank valua- benefit of the estate and insurance on decedent's life re-
tion dates and the valuation date for the estate. ceivable by other beneficiaries must be included in the gross
estate. The term "insurance" refers to life insurance of ev-
Mutual Fund shares. ery description, including death benefits paid by fraternal
The full and true value of a share in an open-end invest- beneficial societies operating under the lodge system.
ment company (commonly known as a mutual fund) is the If proceeds of life insurance are not includible in the gross
redemption (bid) price on the valuation date. If there is no estate under the provisions discussed in this section, they
quoted redemption (bid) price for the valuation date, the full may be includible under another provision.
and true value per share is the last public redemption price
quoted for the first day before the valuation date. Insurance in favor of the estate.
The full amount of the proceeds of insurance on the life
of decedent receivable by the personal representative, or
INSTRUCTIONS FOR SCHEDULE C.- CASH, NOTES, otherwise payable to or for the benefit of the estate, should
MORTGAGES be included in the gross estate. Insurance in favor of the
estate includes insurance effected to provide funds to meet
The classes of property under this schedule should be the estate or inheritance tax, and any other taxes, debts, or
listed separately in the order given. charges which are enforceable against the estate. The
manner in which the policy is drawn is immaterial so long as
Cash in bank. there is an obligation, legally binding upon the beneficiary,
State name of bank and address, amount in each bank, to use the proceeds in payment of such taxes, debts, or
account number, nature of account, and show whether check- charges. The full amount is so includible even though the
ing, savings, time deposit, etc. If statements are obtained premiums or other consideration wherewith the insurance
from banks they should be retained for inspection by the was acquired may have been paid by a person other than
Department of Revenue. decedent.

Cash in possession.
List separately from bank deposits. Insurance receivable by beneficiaries other than the
estate and insurance with respect to which the dece-
Notes and Mortgages. dent possessed incidents of ownership at time of death.
State (1) face value and unpaid balance, (2) date of mort-
gage, (3) date of maturity, (4) name of maker, (5) property The proceeds of all insurance on the life of decedent not
mortgaged, and (6) interest dates and rate of interest. For receivable by or for the benefit of the estate must be in-
example: Bond and mortgage for $9,000, unpaid balance cluded in the gross estate if the decedent possessed at death
$6,000, dated January 1, 1968. John Doe to Richard Roe: any of the incidents of ownership, exercisable either alone
premises 22 Lake Street, Nashville, Tennessee, due Janu- or in conjunction with any person. Incidents of ownership in
ary 1, 1971, payable at 6 percent interest per annum on a policy include, for example, the right of the insured or his
January 1 and July 1. estate to its economic benefits, the power to change the
The full and true value of a note, secured or unsecured beneficiary, to surrender or cancel the policy, to assign it, to
is presumed to be the unpaid principal plus accrued interest revoke an assignment, to pledge it for a loan, or to obtain
to the date of death unless the personal representative es- from the insured a loan against the surrender value of the
tablishes a lower value. If a lower value is asserted by the policy, etc. A reversionary interest (for example, the pro-
personal representative, satisfactory evidence must be sub- ceeds become payable to the insured's estate or payable as
mitted to substantiate the value. The accrued interest must he might direct, should the beneficiary predecease him)
be separately stated on the return. constitutes an incident of ownership.
6

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Execution of Schedule.                                               value of the entire property is includible in the gross estate
     Under "Description" show the name of the insurance com-         for purposes of the tax, the burden is upon him to show his
pany, number of policy, name of beneficiary, face amount of          right to include such lesser value, and in such case he must
the policy, principal amount of any indebtedness to the in-          submit proof of the extent, origin, and nature of the
surance company deductible in determining net proceeds,              decedent's interest and the interest of decedent's co-tenant
the interest on the foregoing indebtedness accrued to the            or co-tenants.
date of death, and the amounts of accumulated dividends                   For each item of property, enter the appropriate letter, A,
(including interest payable thereon), postmortum dividends,          B, or C, to indicate the name and address of the surviving
and returned premiums.  The value to be entered in the               co-tenant.
valuation column of Schedule D is the net value.
     In addition to the insurance shown on the return as part        INSTRUCTIONS FOR SCHEDULE F.-
of the gross estate, complete information must be submit-            OTHER MISCELLANEOUS PROPERTY
ted as to any insurance on the decedent's life which the                  Under this schedule list all items of the gross estate not
executor believes is not includible in the gross estate.             reportable under any other schedule such as the following:
                                                                     debts due the decedent, interest in business, insurance on
INSTRUCTIONS FOR SCHEDULE E.- JOINTLY OWNED                          the life of another, claims (including the value of decedent's
PROPERTY                                                             interest in a claim for refund of income taxes or the amount
                                                                     of the refund actually received), rights, royalties, pensions,
Spouses.                                                             leaseholds, judgements, reversionary or remainder interest,
     One-half of the value of qualified joint interest property is   shares in trust funds, household goods and personal effects,
includible in the gross estate without regard to contribution        farm products and growing crops, livestock, farm machin-
furnished by either spouse.  The term "qualified joint inter-        ery, automobiles, etc.
est" means any interest in property held by the decedent                  When an interest in a partnership or unincorporated busi-
and spouse as:                                                       ness is reportable, submit a statement of assets and liabili-
(1) Tenants by the entirety, or                                      ties as of the valuation date.  Financial statements for five
(2) Joint tenants with right of survivorship, but only if the        (5) years preceding the date of death must be submitted.
spouses are the only joint tenants.                                  Goodwill must be included.  In general, the same informa-
     Each asset is separately listed in the description column       tion should be furnished and the same methods followed as
of Part I of the schedule, and the full value is placed in the       in valuing closely held corporations.
appropriate valuation column.  The total value of all qualified           In case of an interest in a trust fund, a copy of the trust
joint interest property is listed at line 1(a).  The total value on  instrument must be submitted along with a listing of all as-
line 1(a) is then reduced by 50% at line 1(b).                       sets forming the trust principal.

In all other cases:                                                  INSTRUCTIONS FOR SCHEDULE G.-
     The gross estate includes the value of property held jointly    TRANSFERS DURING DECEDENT'S LIFE
at the time of death by decedent and anyone who has the
right of survivorship.  The full value of the property must be            The following transfers made by decedent during his/her
included in Part II, Schedule E unless it can be shown that a        life, by trust or otherwise, are subject to the tax, and must
part of the property originally belonged to the other tenant         be included in the gross estate under this schedule.  Addi-
or tenants, and was never received or acquired by the other          tionally, any gift made by the decedent's spouse and con-
tenant or tenants from decedent for less than an adequate            sented to be treated as a split gift by the decedent will be
and full consideration in money or money's worth, or unless          included on this schedule if the gift was made on or after
it can be shown that any part of the property was acquired           May 31, 1993.
with consideration originally belonging to the surviving joint       (1) All transfers made within three years of decedent's
tenant or tenants.  Where it is shown the property or any            death, excepting those which were:
part thereof, or any part of the consideration with which the        (a) Transfers in the form of bona fide sales for ad-
property was purchased, was acquired by the other tenant                       equate and full consideration in money or money's
or tenants from decedent for less than an adequate and full                    worth;
consideration in money or money's worth, there should be             (b) Transfers which under T.C.A. Section 67-8-104
omitted only so much of the value of the property as is pro-                   were considered exempt from the gift tax.
portionate to the consideration furnished by such other ten-              In addition, any Tennessee gift tax paid by decedent or
ant or tenants.                                                      his estate on any gift tax made by decedent or decedent's
     Where the property was acquired by decedent and an-             spouse within three (3) years of the decedent's death must
other person or persons by gift, bequest, devise, or inherit-        be included in the gross estate.
ance as joint tenants, and their interests are not otherwise         (2) A transfer made by decedent taking effect at or after
specific, or fixed by law, then there should be included only        death were possession or enjoyment of the property
such fractional part of the value of the property as is ob-          was obtained only by surviving the decedent.
tained by dividing the full value of the property by the num-        (3) Transfers where decedent retained possession or en-
ber of joint tenants.                                                joyment of, or the right to the income from, the trans-
     If the personal representative contends less than the           ferred property.
                                                                    7

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(4) Transfers (not otherwise included) whereby decedent relating to health, education, support, or maintenance
retained the right to designate the person or persons is not a general power of appointment.
who shall possess or enjoy the transferred property, (2) If the power was created prior to October 22, 1942,
or the income therefrom. only the exercise of the power will result in taxability.
(5) Transfers subject to any charge, estate or interest,
determinable by the death of decedent or at any Power of appointment - limited.
period ascertainable only by reference to the death of Property under a special limited power of appointment is
decedent . not taxable. Powers limited by an ascertainable standard
(6) Transfers whereby the enjoyment of the transferred are not taxable (see item 1 immediately above). The holder's
property was subject at decedent's death to any duty regarding use of the power must be reasonably mea-
change through the exercise of a power to alter, surable in terms of his or her needs for health, education or
amend, revoke, or terminate. support or any combination of them. The words "support"
In case a transfer, by trust or otherwise, was made by a and "maintenance" are considered synonymous.
written instrument, a copy must be filed with the return. The A power to use property for the comfort, welfare or hap-
name of the transferee, date and form of transfer, and a piness of the holder (donee) of the power does not meet the
complete description of the property should be set forth in required standard. Such standards are not reasonably mea-
this schedule. Each transfer must be valued at the date of surable; thus, the power is taxable.
gift taking into account the gift tax exemption(s) allowed by
T.C.A. Section 67-8-104. An exception exists with respect Credit for certain general powers of appointment.
to insurance on decedent's life, which must be included at A credit shall be allowed against the inheritance tax li-
the value at the date of death without any reduction for gift ability imposed for the transfer of property by an unexercised
tax exemption(s). general power of appointment which was irrevocable prior
to November 1, 1978, if the property transferred by such
INSTRUCTIONS FOR SCHEDULE H.- power was previously included in the taxable estate of a
POWERS OF APPOINTMENT decedent spouse. The credit shall be calculated, using val-
ues reported on the return of the prior estate, by multiplying
Generally. the ratio of: (a) value of the property transferred by such
The value of all property over which decedent possessed power, over (b) value of property allocated to Class A ben-
a general power of appointment at the date of death is in- eficiaries by the return of the prior estate, times (c) tax paid
cludible in the gross estate to the extent such property is by the prior estate on transfers to Class A beneficiaries, as
taxable for federal estate tax purposes under I.R.C. Section follows:
2041. A power of appointment is a power given to a person a X c
permitting that person to make a disposition of the property. b
Generally, a power of appointment is coupled with the right
to receive a part or all the income from the property thereby The credit shall not be allowed for the transfer of any prop-
making the right equivalent to total ownership. erty for which the credit pursuant to T.C.A. Section 67-8-317
Powers of appointment are classified as general and is allowable. Liability for Tennessee Estate Tax will not be
special. A general power is one where there is no limitation diminished by this credit.
on the donee as to the persons in whose favor the power
may be exercised. A special power is one in which the do- INSTRUCTIONS FOR SCHEDULE I. - ANNUITIES
nee can appoint the property only to a person or persons of
a limited or specified group. The gross estate includes the value of an annuity or other
payment under any form of contract or agreement receiv-
Power of appointment - general. able by any beneficiary by reason of surviving decedent.
When a decedent possessed a general power of appoint- Only annuities that continue to provide payments to surviv-
ment, the property is includible in the decedent's estate on ing beneficiaries after decedent dies are included in the gross
Schedule H of the return. The property must be described estate. If the annuity payments cease at decedent's death,
and valued as it would if listed on the return under a sched- nothing is includible in decedent's gross estate as nothing is
ule for the specific property type. For example, stocks and receivable by a surviving beneficiary.
bonds must be described and valued on Schedule H under The term "annuity or other payment" refers to one or more
the same procedure prescribed for Schedule B if the assets payments extending over any period of time. Payments need
had been owned by decedent directly. Copies of all instru- not be made in equal amounts or at regular intervals. "Con-
ments conferring on decedent any power of appointment tracts or agreements" include any arrangement, understand-
must be furnished with the return. Copies of any ing, or plan due to decedent's employment including Indi-
instrument(s) reflecting the exercise of release of such vidual Retirement Accounts, Keogh plans, H.R. 10 plans,
power(s) must be furnished with the return. and military retirement plans.
There are two exceptions to the rule for taxation of gen- Generally, annuities or other payments are taxable for
eral powers of appointment as follows: inheritance tax to the same extent they are taxable for fed-
(1) A power to consume or invade property for the benefit eral estate tax purposes under I.R.C. Section 2039. Annu-
of the decedent, limited by an ascertainable standard ities or other payments paid to an estate or to the Executor
8

- 9 -

or Administrator of an estate for distribution to the heirs are   dents death is deductible as an expense of administration.
taxable at full value.                                            Attorney's Fees.
                                                                       When filing the return there may be deducted attorney
INSTRUCTIONS FOR SCHEDULE J-                                      fees actually paid or which at the time are reasonably ex-
MISCELLANEOUS DEDUCTIONS                                          pected to be paid.  If on final audit of the return, the fees
                                                                  claimed have not been awarded by the proper court and
Taxes.                                                            paid, the deduction will be allowed, provided the Commis-
     The deduction for taxes is limited to taxes owed by dece-    sioner is reasonably satisfied the amount claimed will be
dent or decedent's estate at date of death.  Federal taxes        paid and that it does not exceed a reasonable remuneration
owed by decedent or decedent's estate prior to death on           for the services rendered, taking into account the size and
income received by the decedent prior to death are deduct-        character of the estate and local practice.  If the fees claimed
ible, but taxes on income received after death are not de-        have not been paid at the time of the final audit of the return,
ductible.                                                         the amount deducted must be supported by an affidavit, or
     Unpaid real estate taxes on real estate owned by the         statement of the executor signed under the penalties of per-
decedent and located in Tennessee which were a lien at the        jury, stating such amount has been agreed upon and will be
date of death are deductible.                                     paid.
     Death duties payable to other jurisdictions on intangible         When an attorney serves as personal representative of
personal property includible in the Tennessee gross estate        an estate he may either employ other counsel or furnish his
are deductible.  However, no deduction is allowable for the       own professional services.  Where he furnished his own
payment of federal estate taxes owed or paid upon the             services and saves the estate counsel fees by diligent and
estate's federal tax liability.                                   official legal services, he should be allowed a greater com-
                                                                  pensation than ordinarily granted to an executor employing
Funeral Expenses.                                                 other counsel, but he can be paid only in his capacity as
     Actual funeral expenses, and all other amounts reason-       personal representative and not in both capacities.
ably and actually expended, or contracted to be expended,
for the purpose of a memorial, or monument to the dece-           INSTRUCTIONS FOR SCHEDULE K-
dent, if a resident of Tennessee, are deductible.                 DEBTS AND MORTGAGES
     In itemizing allowable funeral expenses, reimbursements
such as benefits payable by the Social Security Administra-       Debts.
tion and Veteran's Administration must be taken into consid-           Debts and mortgages should be separated and "Debts
eration to reflect the net amount of funeral expenses actu-       of Decedent" should be itemized first, followed by an item-
ally expended.                                                    ized listing of mortgages and liens.
                                                                       Itemize under "Debts of Decedent" only valid debts of
Administrative Expenses.                                          decedent owned at the time of death.  Any indebtedness
     The Executor or Administrator, when filing the return, may   secured by a mortgage or other lien upon property of the
deduct his commissions actually paid or which at that time        gross estate should be listed separately under the heading
are reasonably expected to be paid.  No deduction may be          of "Mortgages and Liens."  If the amount of debt is disputed
taken if no commissions are to be collected.  In case the         or the subject of litigation, only such amount may be de-
amount has not been fixed by court decree, the deduction          ducted as the estate concedes to be a valid claim.  If the
will be allowed on the final audit of the return provided:        claim is contested, that fact must be stated.
(1) The Commissioner is reasonably satisfied the com-                  If the claim against the estate is founded upon a promise
     missions will be paid;                                       or agreement, the deduction is limited to the extent the li-
(2) the amount entered as a deduction is within the amount        ability was contracted bona fide and for an adequate and full
     allowable by law; and                                        consideration in money or money's worth.  No deduction
(3) It is in accordance with the usually accepted practice        shall be allowed on account of any claim arising from a con-
     in estates of similar size and character.                    tract made by decedent and payable by its terms at or after
                                                                  death unless the claim is supported, in whole or in part, by a
     A bequest or devise to the Executor in lieu of commis-       valuable consideration, in which event only so much thereof
sions is not deductible.  If, however, the decedent by his will   as is equivalent in money value to the money value of the
fixed the compensation payable to the Executor for services       consideration received by the decedent shall be allowed as
rendered in administration of the estate, deductions may be       a deduction, but the remaining portion shall not be.  An en-
taken to the extent the amount so fixed does not exceed the       forceable claim founded upon a promise or agreement of
compensation allowable by law.  If the commissions claimed        the decedent to make a contribution or gift (such as a pledge
have not been paid at the time fo final audit of the return, the  or a subscription) to or for the use of a charitable, public,
amount deducted must be supported by an affidavit or state-       religious, etc., organization is deductible to the extent such
ment of the Executor under penalties of perjury stating such      a deduction would be allowable if it had been a bequest.
amount has been agreed upon and will be paid.                          Enter on the schedule notes unsecured by mortgage or
     Interest on federal estate tax actually paid and allowed     other lien and give full details, including name of payee, face
by virtue of IRC Sections 6161 or 6166 for a period not to        and unpaid balance, date and term of note, interest rate and
exceed twenty-one (21) months after the date of the dece-         date to which interest was paid prior to death.  Care must be
                                                                 9

- 10 -

taken to state the exact nature of the claim as well as the        be taken only on property included in the gross estate for
name of the creditor.  If the claim is for services rendered       Tennessee Inheritance Tax purposes.
over a period of time, state the period covered by the claim.           In order for property passing to a surviving spouse to
     If the amount of the claim is the unpaid balance due on a     qualify for the marital deduction, the spouse must survive
contract for the purchase of any property of the gross es-         decedent and be married to decedent on date of death.  The
tate, indicate the schedule and item number where such             marital deduction is not allowable if decedent was not mar-
property is returned.  If the claim represents a joint and         ried to the transferee at the date of death even though the
several liability, the facts must be fully stated and the finan-   transferee was decedent's spouse at the time of transfer.
cial responsibility of the co-obligor explained.
     All vouchers or original records should be retained for       Property interests listed on Schedule M.
inspection.
                                                                        List on Schedule M only those properties the surviving
Mortgages and Liens.                                               spouse takes:
     Itemize under "Mortgages and Liens" only obligations
secured by mortgages or other liens upon property included         (1) As decedent's legatee, devisee, heir, or donee;
in the gross estate at the full value thereof, or the value of     (2) As decedent's surviving tenant by the entirety or joint
the property undiminished by the amount of the mortgage            tenant;
or lien.  If decedent's estate is liable for the indebtedness      (3) As an appointee under decedent's exercise of a power
secured by such mortgage or lien (i.e., if the indebtedness        or as a taker in default at decedent's nonexercise of a
is enforceable against other property of the estate not sub-       power;
ject to such mortgage or lien, or if the decedent was per-         (4) As a beneficiary of insurance on decedent's life;
sonally liable therefor), the full value of property subject to    (5) As the dissenting surviving spouse taking a statutory
the mortgage or lien must be included in the gross estate          interest; or
under the appropriate schedule.  However, if decedent's            (6) As a transferee of a transfer made by the decedent at
estate is not so liable, only the value of the equity of re-       any time.
demption (or value of the property less the amount of such         (7) Pursuant to a Qualified Terminable Interest Property
indebtedness) need be included in the gross estate.  Where         Election (Discussed later at "Qualified Terminable In-
decedent's estate is not liable for a debt secured by a mort-      terest Property").
gage or lien and the amount of the debt is greater than the
value of the property subject to such mortgage or lien, it is      Property interests not listed on Schedule M.
not possible to obtain a deduction for the full amount of the
debt by entering full value of the property as a part of the            Do not list on Schedule M:
gross estate and then deducting the full amount of the debt        (1) Any property not passing from decedent to the sur-
under this schedule.  Notes and other obligations secured          viving spouse;
by the deposit of collateral, such as stocks, bonds, etc.,         (2) Property not included in the gross estate for Tennes-
also should be listed under "Mortgages and Liens."                 see Inheritance Tax purposes;
     Identify, by indicating under the column headed "Descrip-     (3) The full value of a property interest for which a deduc-
tion" the particular schedule and item number where such           tion was claimed on Schedules J and K.  The value of
property subject to the mortgage or lien is returned under         the property interest should be reduced by the de-
the gross estate.                                                  ductions claimed with respect to it;
     Show the name and address of the mortgagee, payee,            (4) The full value of a property interest that passes to the
or obligee, and the date and term of the mortgage, note, or        surviving spouse subject to a mortgage or other en-
other agreement under which the indebtedness is estab-             cumberance or an obligation of the surviving spouse.
lished.  Show the face amount, the unpaid balance, the rate        Include on Schedule M only the net value of the in-
of interest, and date to which the interest was paid prior to      terest after reducing it by the amount of the mortgage
the decedent's death.                                              or other debt;
  Mortgages upon property included in the gross estate are         (5) Nondeductible terminable interests (described below);
deductible only to the extent the liability was contracted bona    (6) Any property interest disclaimed by the surviving
fide and for an adequate and full consideration in money or        spouse.
money's worth.
                                                                   Non deductible terminable interest.
                                                                        Certain interests in property passing from a decedent to
INSTRUCTIONS FOR SCHEDULE M-                                       a surviving spouse are referred to as terminable interests.
BEQUESTS, ETC. TO SURVIVING SPOUSE                                 These are interests that will terminate or fail after the pas-
(MARITAL DEDUCTION)                                                sage of time, or on the occurrence or nonoccurrence of some
                                                                   contingency.  Examples are: life estates, annuities, estate
General.                                                           for terms of years, and patents.  The ownership of a bond,
     The marital deduction is a deduction from the gross es-       note, or other contractual obligation, which when discharged
tate of property included in the gross estate that passes, or      would not have the effect of an annuity for life or for a term,
has passed, to the surviving spouse.  The deduction may            is not considered to be a terminable interest.
                                                                 10

- 11 -

a terminable interest is nondeductible, and should not be           (4) The power is exercisable by the surviving spouse alone
entered on Schedule M:                                              and (whether exercisable by will or during life) in all
(1) Another interest in the same property passed from               events; and;
the decedent to some other person for less than ad                  (5) No part of the entire interest is subject to a power in
equate and full consideration in money or money's                   any other person to appoint any part to any person
worth; and                                                          other than the surviving spouse.
(2) By reason of its passing, the other person or that                   If these five conditions are satisfied only for a specific
person's heirs may enjoy part of the property after the             portion of the entire interest, see the I.R.C. Section 2056(b)
termination of the surviving spouse's interest.                     regulations for the determination of the part that qualifies for
     This rule applies even though the interest passing from        the marital deduction.
decedent to a person other than the surviving spouse is not
included in the gross estate, and regardless of when the            Life insurance, endowment, or annuity payments, with
interest passes.  The rule also applies regardless of whether       power of appointment in surviving spouse.
the surviving spouse's interest and the other person's inter-
est pass from the decedent at the same time.                             A property interest consisting of the entire proceeds un-
     For example, a decedent devised real property to his           der a life insurance, endowment, or annuity contract is treated
wife for life, with remainder to his children.  The life interest   as passing from the decedent to the surviving spouse, and
that passed to the wife does not qualify for the marital de-        will not be treated as a nondeductible terminable interest if:
duction since it will terminate at her death and the children       (1) The surviving spouse is entitled to receive the pro-
will thereafter possess or enjoy the property.                      ceeds in installments, or is entitled to interest thereon,
     However, if decedent purchased a joint and survivor an-        with all amounts payable during the life of the spouse,
nuity for himself and his wife who survived him, the value of       payable only to the surviving spouse;
the survivor's annuity, to the extent it is included in the gross   (2) The installment or interest payments are payable an-
estate, qualifies for the marital deduction because even            nually, or more frequently, beginning not later than
though the interest will terminate on the wife's death, no          thirteen months after the decedent's death;
one else will possess or enjoy any part of the property.            (3) The surviving spouse has the power, exercisable, in
     The marital deduction is not allowed for an interest which     favor of the surviving spouse or of the estate of the
decedent directed the executor or a trustee to convert into a       surviving spouse, to appoint all amounts payable un-
terminable interest for the surviving spouse.  The marital          der the contract;
deduction is not allowed for such an interest even if there         (4) The power is exercisable by the surviving spouse alone
was no interest in the property passing to another person           and (whether exercisable by will or during life) in all
and even if the terminable interest would otherwise have            events; and
been deductible under the life estate and life insurance and        (5) No part of the amount payable under the contract is
annuity payments with powers of appointment exceptions              subject to a power in any other person to appoint any
described below.                                                    part to any person other than the surviving spouse.
     A property interest passing from decedent to the surviv-
ing spouse which may be satisfied out of a group of assets               If these five conditions are satisfied only for a specific
which includes a nondeductible interest will not qualify for        portion of the proceeds, see the I.R.C. Section 2056(b) regu-
the marital deduction to the extent of the value of the non-        lations for the determination of the part that qualifies for the
deductible interest.  In determining the allowable marital          marital deduction.
deduction, the nondeductible interest must be subtracted
from the otherwise allowable marital deduction.  Example of         Charitable Remainder Trusts.
property interests that may be paid or otherwise satisfied               An interest in a charitable remainder trust will not be
out of any of a group of assets are a bequest of the residue        treated as a nondeductible terminable interest if:
of the decedent's estate, or of a share of the residue, and a       (1) The interest in the trust passes from the decedent to
cash legacy payable out of the general estate.                      the surviving spouse; and
                                                                    (2) The surviving spouse is the only beneficiary of the
Life estate with power of appointment in the surviving              trust other than charitable organizations described in
spouse.                                                             I.R.C. Section 170(c).
                                                                         A "charitable remainder trust" is a charitable remainder
     A property interest, whether or not in trust will be treated   annuity trust or a charitable remainder unitrust.  (See I.R.C.
as passing to the surviving spouse, and will not be treated         Section 664 for descriptions of these trusts).
as a nondeductible terminable interest if:
(1) The surviving spouse is entitled for life to all of the         Qualified terminable interest property (QTIP).
income from the entire interest;                                         Generally, marital deduction is not allowed for a life es-
(2) The income is payable annually or at more frequent              tate passing to a surviving spouse because the spouse's
intervals;                                                          interest terminates when the spouse dies.  However, execu-
(3) The surviving spouse has the power, exercisable in              tor may elect the marital deduction for all or part of this in-
favor of the surviving spouse or the estate of the sur-             terest if it meets the requirements of qualified terminable
viving spouse, to appoint the entire interest;                      interest property.   The effect of the election is the property
                                                                  11

- 12 -

interest will be treated as passing to the surviving spouse passing to the surviving spouse.
and will not be treated as a nondeductible terminable inter- (4) Any other important information such as that relating
est. All of the other marital deduction requirements must to any claim to any part of the estate not arising under
still be satisfied before the QTIP election is allowable. the will.
You make the QTIP election simply by listing the quali-
fied terminable interest property on Schedule M and de- Attachments related to the marital deduction.
ducting its value. You are presumed to have made the QTIP If, when you file the return, the court of probate jurisdic-
election if you list the property and deduct its value on Sched- tion has entered any decree interpreting the will or any of its
ule M. If you make this election, the surviving spouse's provisions affecting any of the interests listed on Schedule
gross estate will include the value of the "qualified termi- M or has entered any order of distribution, attach a copy of
nable interest property." The election is irrevocable. the decree or order. In addition, other evidence to support
The term "qualified terminable interest property" means the marital deduction claimed may be requested.
property passing from decedent in which the surviving
spouse has qualifying income interest for life. The surviving INSTRUCTIONS FOR SCHEDULE O -
spouse has a qualifying interest income for life if the spouse BEQUESTS: PUBLIC, CHARITABLE, RELIGIOUS AND
is entitled to all the income from the property payable annu- EDUCATIONAL
ally, or more frequently, and no person has the power to
appoint any part of the property to anyone other than the Deductions authorized for public, charitable, religious,
surviving spouse. educational and similar gifts and bequests should be en-
An annuity is treated as an income interest which may tered on this schedule. If the transfer was made by any
be a qualifying income interest for life (regardless of whether written instrument, other than a will, a copy thereof should
the property from which the annuity is payable can be sepa- be submitted with the return. If claim is made under this
rately identified). Income interests granted for a term of schedule for deduction of the value of the residue or a por-
years or life estates subject to termination if certain events tion of the residue passing to charity under decedent's will,
occur (for example, if the surviving spouse remarries) do there should be submitted a computation showing how the
not qualify for the QTIP election. If any person, including value was determined.
the surviving spouse, can appoint any part of the property Where a part or all of the residuary estate is bequeathed
subject to the qualifying income interest to someone other to a qualifying charity and said residuary estate is charged
than the surviving spouse, the interest does not qualify for with the payment of all death taxes, then the value of this
the QTIP election. However, a power exercisable only at or charitable bequest is diminished by the amount of inherit-
after the death of the spouse does not disqualify the inter- ance taxes and federal estate tax payable therefrom.
ests for purposes of the QTIP election.
Generation Skipping Transfer Tax.
Reduction in the marital deduction. The Tennessee Generation-Skipping Transfer Tax is im-
The total of the values listed on Schedule M must be posed by Part 6 of Chapter 8, Title 67, Tennessee Code
reduced by the amount of the federal estate taxes and state Annotate. It is a transfer subject to the tax imposed by Title
or other death taxes which are payable out of, or chargeable 26 U.S.C., where the original transferor is a resident of Ten-
against, the property interest listed. Such taxes must be nessee at the date of transfer, or the property transferred is
entered on the lines designated 67 and 68 at the bottom of real or tangible personal property with an actual situs in Ten-
Schedule M. Both items must be supported by an identifi- nessee.
cation and computation of the amounts. The computation The tax is equal to the allowable credit for state inherit-
must be attached to the return. ance tax under the federal generation-skipping transfer tax
If schedule M includes a bequest of the residue or a part imposed by 26 U.S.C.
of the residue of the decedent's estate, attach a copy of the If any one of the property transferred is real property in
computation showing how the value of the residue was de- another state or tangible personal property having an actual
termined. Include a statement showing: situs in another state which requires the payment of gen-
(1) The value of all property which is included in the eration-skipping transfer tax, the tax due shall be appor-
decedent's gross estate but does not pass under the tioned in the same ratio as the value of the property in each
will, such as transfers, jointly owned property which state bears to the value of the gross generation-skipping
passed to the survivor on decedent's death, and the transfer for federal tax purposes.
insurance payable to specific beneficiaries. A duplicate copy of the return reporting a generation-
(2) The value of all specific and general legacies or de- skipping transfer under applicable federal statutes must be
vices, with reference to the applicable clause or para- filed with the department of revenue on or before the last
graph of the decedent's will or codicil. (If legacies are date prescribed for filing the federal return. The Tennessee
made to each member of a class; for example $1,000 tax imposed shall be payable at that time.
to each of decedent's employees, only the number in
each class and the total value of property received by
them need be furnished.)
(3) The date of birth of all persons, the length of whose
lives may affect the value of the residuary interest
12

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Tennessee Department of Revenue
Authorization No. 347163,  2,000  copies, November  1998.
This public document was promulgated at a cost of 46     per copy.

PDF file checksum: 3273786756

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