Does Kentucky Have an Inheritance Tax?

Kentucky is one of the few states that imposes an inheritance tax on assets passed to beneficiaries. This is different from an estate tax, which Kentucky does not have. An inheritance tax is paid by the person who receives the property, the beneficiary, based on the value of the assets they inherit. In contrast, an estate tax is levied on the total value of a deceased person’s estate before assets are distributed. The federal government has an estate tax, but it only applies to estates with a very high value.

Beneficiary Classifications and Exemptions

Kentucky law separates beneficiaries into three classes to determine who must pay the inheritance tax. The relationship between the deceased individual and the beneficiary is the sole factor in this classification.

Class A beneficiaries are completely exempt from the Kentucky inheritance tax. This group includes the decedent’s most immediate relatives:

• Surviving spouses
• Parents
• Children (including adopted children and stepchildren)
• Grandchildren
• Siblings (including half-siblings)

Beneficiaries in this class will not owe any inheritance tax to the state. The process is often simplified, requiring only an “Affidavit of Exemption” to be filed with the court if no federal estate tax return is needed.

Class B includes a wider circle of relatives who are not as closely related as those in Class A. Beneficiaries in this class receive a small exemption, and any amount inherited above that is subject to the tax. This category consists of:

• Nieces and nephews (including half-nieces and half-nephews)
• Daughters-in-law and sons-in-law
• Aunts and uncles
• Great-grandchildren

The final category, Class C, is a catch-all group that includes any beneficiary not listed in Class A or B. This covers distant relatives like cousins, friends, or other non-relatives who receive an inheritance. Like Class B, this group has a minimal exemption amount. Bequests to educational, religious, or public charitable organizations are exempt from the inheritance tax.

Inheritance Tax Rates and Calculations

The calculation of Kentucky’s inheritance tax depends on the beneficiary’s class and the value of the property received. The tax applies to all real and tangible personal property located within Kentucky. For Kentucky residents, the tax also extends to intangible property, such as bank accounts, stocks, and bonds, no matter where they are held.

The tax is only levied on the value of the inheritance that exceeds a specific exemption amount. Class B beneficiaries are granted a $1,000 exemption, and any inherited amount above this is subject to tax rates from 4% to 16%. Class C beneficiaries have a smaller exemption of $500, with tax rates ranging from 6% to 16% on the value above that amount.

For example, a niece who is a Class B beneficiary and inherits $25,000 would have a taxable inheritance of $24,000 after her $1,000 exemption. The tax is calculated on a progressive scale based on the specific rate brackets provided by the Kentucky Department of Revenue.

Filing the Kentucky Inheritance Tax Return

When an inheritance is subject to tax, a Kentucky Inheritance and Estate Tax Return, Form 92A200, must be filed. The estate’s personal representative or the beneficiary must gather information for the form, including:

• A complete inventory of all the decedent’s assets and their fair market value
• A comprehensive list of all debts and expenses of the estate
• A list of all beneficiaries with their relationship to the decedent

The completed tax return must be filed with the Kentucky Department of Revenue within 18 months of the decedent’s date of death. Any tax owed is also due by this deadline and must be paid.

A 5% discount on the tax due is available if the payment is made within nine months of the date of death. For estates owing more than $5,000, Kentucky law provides an option to pay the tax in ten equal annual installments. This provision can provide financial flexibility for beneficiaries.