What Is the Inheritance Tax in Nebraska?

Nebraska is one of the few states that imposes an inheritance tax on property transferred from a deceased individual to their beneficiaries. This tax is distinct from a federal estate tax, which is levied on the total value of a deceased person’s estate before assets are distributed to heirs. The Nebraska inheritance tax applies directly to the recipient of the property, meaning the beneficiary is responsible for its payment. The tax is applied to the clear market value of inherited property following a death.

Taxable Inheritance and Who is Subject to It

The Nebraska inheritance tax is imposed on the beneficiary who receives property from a decedent. The scope of “taxable inheritance” in Nebraska encompasses various types of property and methods of transfer.

Real property located within Nebraska is subject to this tax, as is tangible personal property physically situated in the state. For Nebraska residents, intangible personal property, such as bank accounts, stocks, and bonds, is also taxable regardless of its physical location. This includes property transferred through a will or via intestate succession. Additionally, certain non-probate transfers are also subject to the tax, such as assets held in joint tenancy with right of survivorship, payable-on-death (POD) accounts, transfer-on-death (TOD) accounts, and certain lifetime transfers made in contemplation of death.

The determination of who pays the tax, and at what rate, depends heavily on the beneficiary’s relationship to the decedent. Nebraska classifies beneficiaries into different groups based on their kinship, and each class has its own set of exemptions and tax rates. These classifications directly influence the tax burden on inherited assets, with closer relationships typically receiving more favorable tax treatment.

Exemptions and Allowable Deductions

Nebraska law provides specific exemptions and deductions that can reduce the value of an inheritance subject to tax. Property passing to a surviving spouse is generally exempt from the Nebraska inheritance tax. Transfers to qualified charitable organizations, educational institutions, or religious organizations also typically qualify for an exemption. Life insurance proceeds are usually exempt from this tax if they are paid directly to a named beneficiary and not to the decedent’s estate. Property inherited by individuals under 22 years of age is also exempt.

Certain allowances for immediate family members, such as a homestead allowance, exempt property rights, and family maintenance allowances, can also reduce the taxable inheritance. Gifts made by the decedent more than three years before death are excluded from inheritance tax. Even gifts made within three years of death are excluded if they were not required to be reported on a federal gift tax return, such as those falling within the annual gift tax exclusion.

Beyond exemptions, several allowable deductions further reduce the net value of an inheritance for tax calculation purposes. These deductions include:

• The cost of the decedent’s funeral.
• All expenses incurred in the administration of the estate, such as attorney fees, court costs, and fees for the personal representative.
• Expenses from the decedent’s last illness.
• Any outstanding debts for which the decedent was liable at the time of death.
• Any federal estate tax paid or expected to be paid.

Calculating the Tax

Calculating the Nebraska inheritance tax involves a series of steps applied to each beneficiary’s inheritance. The first step determines the net value of the inheritance for each recipient by taking the gross value of the property received and subtracting a proportional share of the allowable debts and expenses of the estate.

Once the net value is established, the beneficiary-specific exemption is applied. Nebraska categorizes beneficiaries into three classes. Class I beneficiaries, which include immediate relatives such as parents, grandparents, siblings, children, and lineal descendants (including adopted individuals), along with their spouses, receive a $100,000 exemption. Class II beneficiaries, or more remote relatives like aunts, uncles, nieces, nephews, their lineal descendants, and their spouses, are granted a $40,000 exemption. All other beneficiaries fall into Class III and have a $25,000 exemption.

After applying the exemption, the correct tax rate is identified based on the beneficiary’s class. For Class I beneficiaries, a 1% tax rate applies to the portion of the inheritance exceeding their $100,000 exemption. Class II beneficiaries face an 11% tax rate on amounts over their $40,000 exemption. Class III beneficiaries are subject to a 15% tax rate on the value exceeding their $25,000 exemption.

Payment and Reporting Requirements

The Nebraska inheritance tax is due and payable within 12 months from the date of the decedent’s death. Failure to pay the tax by this deadline can result in penalties. While the beneficiary is ultimately responsible for the tax, the personal representative of the estate or the trustee of a trust typically holds the responsibility for calculating, collecting, and remitting the tax to the proper authorities.

Payment of the inheritance tax is made to the County Treasurer in the county where the estate is probated or where the decedent resided. The tax amount is generally determined by the County Court as part of the probate process. An inheritance tax return or worksheet is often filed with the County Court to detail the assets, beneficiaries, and calculations.

For assets that do not pass through the formal probate process, a separate county court proceeding may be necessary to determine the inheritance tax. In these instances, beneficiaries or transferees may have a direct obligation to report and pay the tax on those specific assets to the County Treasurer. Personal representatives are also required to submit an Estate County Inheritance Tax Report summarizing inheritance taxes by beneficiary class upon the distribution of estate proceeds.