Kentucky currently doesn't impose a separate estate tax due to changes in the federal estate tax laws that will remain in effect through December 31, 2010. However, Kentucky is one of seven states that assesses a separate inheritance tax on property owned by a resident and real estate and tangible personal property located in Kentucky owned by a nonresident. Each beneficiary receives an exemption from the inheritance tax based on the beneficiary's degree of relationship to the decedent. Here are the general rules with regard to the Kentucky inheritance tax:
- The exemptions are as follows:
- Class A - surviving spouse, parents, children (by blood or adopted), grandchildren (by blood or adopted), stepchildren and step grandchildren (by blood or adopted), brothers and sisters (whole or half), and certain charitable organizations are exempt from paying the Kentucky inheritance tax.
- Class B - nieces and nephews, half-nieces and half-nephews, daughters-in-law and sons-in-law, aunts and uncles, and great granchildren (by blood, by stephchild, or by child adopted during infancy) are eligible for an exemption of $1,000 each.
- Class C - anyone not listed above is eligible for an exemption of $500 each.
- Certain expenses can be deducted, including but not limited to funeral expenses up to $5,000, attorney's fees, personal representative commissions, debts and taxes owed by the decedent, real property taxes, and mortgages.
- The tax rates vary by class - Class B rates range from 4%-16%; Class C rates range from 6%-16%.
- A Kentucky Inheritance Tax Return (Form 92A200, 92A202, or 92A205) must be filed and the inheritance tax paid within 18 months of the decedent's date of death, otherwise interest and penalties will begin to accrue. If the inheritance tax is paid within 9 months of the date of death, then a 5% discount is applied.
- If no Kentucky inheritance tax is due and a federal estate tax return (Form 706) is also not required to be filed, then it won't be necessary to file a Kentucky inheritance tax return. Instead, an "Affidavit of Exemption" will be accepted for the final settlement and closing of the administration of an estate.
This information is complements of the Kentucky Department of Revenue.
The bottom line - if you're a Kentucky resident and your estate is passing to someone other than your immediate family, or if you're a nonresident who owns real estate and/or tangible personal property located in Kentucky and it's not passing to your immediate family, then your beneficiaries may owe a Kentucky inheritance tax. Up next, Maine estate taxes.