Kentucky Inheritance Tax

Kentucky’s inheritance tax applies to most assets that a beneficiary receives from someone who has passed away. Here’s how the inheritance tax works.

This post is provided for general information only. Please confirm the details and circumstances of your unique situation with your tax accountant or other appropriate advisor before taking action.

What’s the difference between an estate tax and an inheritance tax?

People often use estate tax and inheritance tax to mean the same thing, but they’re actually two different taxes.

An estate tax is a tax paid by the estate of the person who passed away. The estate files a separate tax return and pays taxes before anything is paid to the heirs.

An inheritance tax is paid by the heirs of the estate. The person who receives money or property pays tax based on what he or she received.

Does Kentucky have an inheritance tax?

Kentucky has an inheritance tax but no estate tax.

This is the opposite of the IRS. The IRS has an estate tax but no inheritance tax.

Who does the inheritance tax apply to?

Kentucky’s inheritance tax applies to inheritances from the estates of Kentucky residents.

This includes Kentucky residents inheriting from Kentucky residents and non-Kentucky residents inheriting from Kentucky residents.

It generally doesn’t include a Kentucky resident inheriting from a non-Kentucky resident. It may include Kentucky real estate or businesses owned by a non-Kentucky resident.

What does the inheritance tax apply to?

The inheritance tax applies to most types of property, including cash, investments, and real estate.

The inheritance tax generally does not apply to real estate located in another state even when owned by a Kentucky resident. It also doesn’t apply to certain out-of-state interests that are covered by another state’s estate tax or inheritance tax.

There is also an exception for IRAs and other qualified retirement accounts. There are strict rules that must be followed to take this exemption. For example, one of the requirements to exempt an IRA is to take out the IRA funds in 36 or more equal payments.

Contact a tax advisor before taking action if you’re subject to the inheritance tax and inherit a retirement account.

How much is the Kentucky inheritance tax?

Kentucky has three classes of beneficiaries based on how closely related they are. There is a different inheritance tax rate for each class.

Class A Beneficiaries

Class A beneficiaries are generally exempt from the inheritance tax.

You’re typically a Class A beneficiary if you’re a:

  • Surviving spouse
  • Parent
  • Child
  • Grandchild
  • Brother
  • Sister
  • Half-brother
  • Half-sister
  • Stepchild
  • Child adopted during infancy
  • Child adopted during adulthood who was raised by the decdent during infancy

Class B Beneficiaries

You’re typically a Class B beneficiary if you’re a:

  • Niece by blood
  • Nephew by blood
  • Half-niece
  • Half-nephew
  • Daughter-in-law
  • Son-in-law
  • Aunt
  • Uncle
  • Great-grandchild

You’ll pay taxes based on the amount of your inheritance (not the value of the entire estate).

InheritanceTax
$500 or lessExempt
$500 to $1,000Exempt
$1,000 to $10,0004% of amount over $1,000
$10,000 to $20,000$360 + 5% of amount over $10,000
$20,000 to $30,000$860 + 6% of amount over $20,000
$30,000 to $45,000$1,460 + 8% of amount over $30,000
$45,000 to $60,000$2,660 + 10% of amount over $45,000
$60,000 to $100,000$4,160 + 12% of amount over $60,000
$100,000 to $200,000$8,960 + 14% of amount over $100,000
$200,000 or more$22,960 + 16% of amount over $200,000

Class C Beneficiaries

You’re typically a Class C beneficiary if you’re a:

  • Nephew by marriage
  • Niece by marriage
  • Great-nephew
  • Great-niece
  • Other person not listed in Class A or Class B

You’ll pay taxes based on the amount of your inheritance (not the value of the entire estate).

InheritanceTax
$500 or lessExempt
$500 to $1,0006% of amount over $500
$1,000 to $10,000$30 + 6% of amount
over $1,000
$10,000 to $20,000$570 + 8% of amount over $10,000
$20,000 to $30,000$1,370 + 10% of amount over $20,000
$30,000 to $45,000$2,370 + 12% of amount over $30,000
$45,000 to $60,000$4,170 + 14% of amount over $45,000
$60,000 to $100,000$6,270 + 16% of amount over $60,000
$100,000 to $200,000$12,670 + 16% of amount over $100,000
$200,000 or more$28,670 + 16% of amount over $200,000

How do you file Kentucky inheritance taxes?

There are four possible scenarios for filing Kentucky inheritance taxes.

The short form may be used when:

  • A federal estate tax return is not required to be filed,
  • The assets of the estate consist of 10 items or less,
  • No gifts or transfers were made within three years of death without full consideration,
  • No real or personal property was transferred with a retained life interest,
  • The decedent did not possess any power to appoint any real or personal property or have the use of any qualified terminable interest property, and
  • The decedent had not received any real or personal property from another decedent within five years and paid inheritance tax on the property.

When are inheritance tax returns due?

If inheritance taxes are due, the inheritance tax return is due within 18 months of the decedent’s death. If the tax isn’t paid within the 18 months, interest and penalties may apply.

When are inheritance taxes due?

There are three options to pay inheritance taxes:

  • Pay within nine months of the date of the decdent’s death to receive a 5% discount
  • Pay within 18 months of the date of the decdent’s death to pay on time
  • If you owe more than $5,000 in inheritance tax, pay in 10 equal, annual installments with the first payment due within 18 months of the decdent’s death

Does Kentucky have a gift tax?

Kentucky does not have a gift tax.

You can generally give unlimited gifts during your lifetime without paying Kentucky taxes. This is a common estate planning move to avoid Kentucky inheritance taxes.

Don’t forget to review the federal gift tax rules when making gifts. In most cases, you can stay under the federal gift tax limits and not have to pay the federal gift tax.

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