Does Kentucky Have an Inheritance Tax?
Kentucky is one of the few states that still levies an inheritance tax, which differs from an estate tax. Understanding how it works can make a major difference in your estate planning strategy.
Most people understand that estate planning is crucial to passing on their inheritance to their beneficiaries, but most people don’t know how much estate planning can vary from state to state. In this blog, the estate planning attorneys at RKPT discuss Kentucky inheritance law, how it differs from traditional estate planning, and how to use this structure to your advantage. For more information or to work with an estate planning attorney in Kentucky, call RKPT at (513) 721-3330.
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Kentucky Inheritance Tax: An Overview
Kentucky imposes an inheritance tax, not an estate tax, based on (1) the beneficiary’s relationship to the deceased and (2) the amount inherited.
- Class A beneficiaries include the decedent's spouse, parents, children, grandchildren, siblings, and half-siblings. This group is fully exempt from the Kentucky inheritance tax.
- Class B beneficiaries are nieces, nephews, children-in-law, aunts, uncles, and great-grandchildren. They receive a $1,000 tax exemption, with amounts above this taxed between 4% to 16%. Larger inheritances pay a larger percentage in inheritance tax.
- Class C beneficiaries refer to all others, and most organizations in line to receive a percentage of the estate. They receive a $500 tax exemption, with amounts above this taxed from 6% to 16% on a progressive scale.
Inheritance tax applies to all property in Kentucky owned by a resident, and to Kentucky-based property of nonresidents. Kentucky does not have a separate gift tax or estate tax, but large estates may be subject to federal estate tax rules. If you wish to leave property to any of the class B or C beneficiaries listed above, then you need to ensure you understand the tax implications of doing so.
How to Get a Discount on Your Inheritance Tax
Proper planning and timely payments are essential for Kentucky inheritance taxes. If the beneficiaries of your estate are subject to inheritance tax, then paying within nine months of the decedent’s death earns a 5% discount, and if the tax liability exceeds $5,000, beneficiaries may elect to pay over ten annual installments, although interest may apply.
It’s important to note that only assets within Kentucky are subject to this tax, and real estate or property located out of state is not included. This includes real and personal property. Taxable assets include but are not limited to:
- Kentucky real estate
- Cash and bank account amounts (even those located outside the state)
- Certificates of deposit (CDs), stocks, and bonds
- Life insurance policies
- Annuities
- Household goods (furniture, appliances, collections, artwork)
- Vehicles
- Jewelry
- Farming assets, including equipment, livestock, and crops
- Debts owed to the decedent
Gifts made within three years of death may also be subject to the inheritance tax under certain conditions. Speak to an estate lawyer if you have questions about a specific situation.
Applying the Federal Estate Tax
While Kentucky does not have a state estate tax or a gift tax, the federal government does impose estate and gift taxes. For 2025, the federal estate tax exemption is $13.99 million per individual, with a top rate of 40% applying to amounts above this threshold. Married couples can combine their exemptions to shield up to $27.98 million, but any estate exceeding these amounts will be subject to federal tax.
Your estate planning attorney will pay close attention to your specific tax bracket and any possible exemptions, as well as consult current Kentucky Department of Revenue resources to ensure compliance and minimize the tax burden. If you have questions about your inheritance or need help navigating Kentucky’s complex inheritance tax rules, call the qualified estate planning attorneys at RKPT: (513) 721-3330.
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Kentucky Inheritance Tax: Frequently Asked Questions
What is the Kentucky inheritance tax?
Kentucky applies an inheritance tax, which is a tax on beneficiaries who receive property from someone who has died. The amount is based on the beneficiary’s relationship to the deceased and the value of the assets inherited. The tax applies to all property in Kentucky, and to any Kentucky-based property of nonresidents. In addition to this tax, federal estate tax rules may also apply.
Property located in Kentucky owned by residents and nonresidents is subject to the tax. Out-of-state real estate owned by a Kentucky resident is not taxed, but other intangible assets may be.
Is my inheritance exempt from Kentucky inheritance tax?
Only if you are considered a “Class A" beneficiary, which means you are the surviving spouse, parent, child, grandchild, or sibling of the deceased person. If any of these relationships apply to you, you are completely exempt from the Kentucky inheritance tax.
What are the tax rates and exemptions for the Kentucky Inheritance Tax?
Tax rates for the Kentucky Inheritance Tax fall into two categories:
- Class B (nieces, nephews, children-in-law, aunts, uncles, great-grandchildren) receive a $1,000 exemption. Amounts above this are taxed at progressive rates from 4% to 16%, depending on the inheritance value.
- Class C (cousins or unrelated persons) receive a $500 exemption, with tax rates from 6% to 16% on the remainder.
Is real estate located outside the state subject to the inheritance tax?
Real estate located outside Kentucky is not subject to the tax for Kentucky residents. However, real and personal property located in Kentucky and owned by nonresidents is taxable. All property generally must be valued at fair market value on the date of death for tax purposes.
How can I avoid the Kentucky Inheritance Tax?
Paying the tax within nine months from the date of death earns a 5% discount. If liability exceeds $5,000, beneficiaries may elect to pay over ten annual installments with interest starting 18 months after death. (Also, remember that whether or not you are subject to the tax at all depends on whether you are a Class A or Class B/C beneficiary.)
Your tax return should generally be filed within 18 months of the decedent’s death to avoid penalties and interest.
Does Kentucky have an estate or gift tax?
Kentucky does not have an estate tax or a gift tax, but large estates may be liable for federal estate taxes if they exceed the federal exemption amounts. Class B and C beneficiaries will need to pay the Kentucky inheritance tax after a $1000 or $500 exemption, respectively.
What deductions are allowed against the Kentucky inheritance tax?
Deductions can include funeral expenses (up to $5,000), attorney’s fees, debts owed by the decedent, and certain other costs associated with the estate.
Where can I get more help?
For general inquiries, consult the Kentucky Department of Revenue. For qualified legal advice from an estate planning attorney, contact RKPT: (513) 721-3330.
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