Inheritance & Estate Tax

Inheritance and Estate Taxes are two separate taxes that are often referred to as 'death taxes' since both are occasioned by the death of a property owner. Kentucky Inheritance and Estate Tax Laws can be found under Chapter 140 of the Kentucky Revised Statutes. Definitions can be found on pages 9 – 10 of the Guide to Kentucky Inheritance and Estate Taxes.

Estate Tax

There is no Kentucky estate tax. For more information, see page 2 of the Guide to Kentucky Inheritance and Estate Taxes.

Inheritance Tax

The inheritance tax is a tax on a beneficiary’s right to receive property from a deceased person. The amount of the inheritance tax depends on the relationship of the beneficiary to the deceased person and the value of the property.

Generally, the closer the relationship the greater the exemption and the smaller the tax rate. All property belonging to a resident of Kentucky is subject to the tax except for real estate located in another state. Also, real estate and personal property located in Kentucky and owned by a nonresident is subject to being taxed.

If the inheritance tax is paid within nine months of date of decedent’s death, a 5 percent discount is allowed. The tax due should be paid when the return is filed. However, if the beneficiary’s net inheritance tax liability exceeds $5,000 and the return is filed timely, an election can be made to pay the tax in 10 equal annual installments.

The first installment is due at the time the return is filed. The portion of the tax deferred is charged with interest at the rate established by law beginning 18 months after the date of death.

Classes of Beneficiaries

Class A

surviving spouse
parent
child
grandchild
brother
sister
half-brother or half-sister

Class B

niece
nephew
half-niece
half-nephew
daughter-in-law
son-in-law
aunt
uncle
great-grandchild

Nieces and nephews by marriage and great-nieces and great-nephews are Class C beneficiaries. Class B beneficiaries receive a $1,000 exemption and the tax rate is 4 percent to 16 percent. See the tax chart on page 6 of the Guide to Kentucky Inheritance and Estate Taxes.

Class C

Include all persons not included in Class A or Class B.

Cousins are considered Class C beneficiaries.

Class C beneficiaries receive a $500 exemption and the tax rate is 6 percent to 16 percent. See the tax chart on page 6 of the Guide to Kentucky Inheritance and Estate Taxes.

Inheritance and Estate Tax forms are current as of Tax Year 2012.

Current Year Inheritance and Estate Tax

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If taxes are due, when must the forms be filed?

If taxes are due, the return must be filed within 18 months from the date of the decedent’s death. If the tax due is not paid within 18 months of death, interest and perhaps penalties are due. Filing the tax return should not be postponed due to the delay in receiving the federal estate tax audit or closing letter or because the real estate is being sold.

If taxes are due, what must be included on the return?

In general, all real and personal property in which the decedent owned or had an interest must be included on the tax return. See page 7 of the Guide to Kentucky Inheritance and Estate Taxes for examples of taxable property.

How must property included on the tax return be valued?

Most of the time all real and personal property must be reported at its fair cash value on the date of decedent’s death. Under certain conditions when real estate passes to a son-in-law or a daughter-in-law, the real estate can be valued at its agricultural or horticultural value.

What about gifts made before death? Are they taxable?

Any gift made within three years of death is subject to being taxed unless the gift was made for a living reason and not in contemplation of death.

If a tax return has to be filed, what deductions are allowed?

See page 8 of the Guide to Kentucky Inheritance and Estate Taxes.

If the decedent was a resident of Kentucky, is property located outside of the state taxable?

If the decedent was a resident of Kentucky, all intangible property located outside of Kentucky is taxable. Under certain conditions partnership property located in another state is taxable.

Real estate is taxable in the state where it is located. If a Kentucky resident owned real estate in another state, that real estate is not taxable for Kentucky inheritance tax purposes. If a Kentucky nonresident owned real estate in Kentucky, then that property is subject to Kentucky inheritance taxes.

I'm a resident of Kentucky and I’m receiving assets from an estate. Do I have to file a Kentucky inheritance tax return?

If the decedent was not a resident of Kentucky and did not own any real estate in Kentucky or own any property that had a business situs in Kentucky, then you need to contact the state revenue department where the decedent was a resident to find out their requirements for filing an inheritance tax return.

How are assets distributed?

When a person dies, real and personal property may pass by title, under the terms of the will, or by the laws of Kentucky. Survivorship property and property payable on death passes to the surviving co-owner shown on the deed or instrument, unless a disclaimer was filed, and not by the terms of the will or by the laws of intestate succession.

When a person dies with a will, distribution of the estate is made according to the will, unless the will is renounced by the surviving spouse or a disclaimer is filed. If the will is renounced, the surviving spouse receives one-third of the real property and one-half of surplus property.

The law provides that when a person dies without a will, one half of the estate, after funeral expenses, debts, and cost of administration are paid, goes to the surviving spouse and one-half descends as follows (if there is no surviving spouse, the whole estate descends):

to his children and their descendants (descendants take the share of their deceased parents); if there are none,
to his father and mother; if one is deceased, to the survivor; if there is no father or mother,
to his brothers and sisters and their descendants; (half-brothers and half-sisters and their descendants inherit only one- half as much as those of the whole blood); if none,
to the husband or wife of the intestate; if none,
one share shall pass to the paternal and the other to the maternal kindred in the following order:
- the grandfather and grandmother equally, if one is deceased, it shall go to the survivor; if both are deceased,
- to the uncles and aunts and their descendants; if there are none,
- to the great-grandfathers and great-grandmothers; if none,
- to the brothers and sisters of the grandfathers and grandmothers; and
if there is no kindred to one of the parents as described in (5), the whole descends to the kindred of the other. If there are neither paternal nor maternal kindred, the whole descends to the kindred of the spouse.

What are the exemptions if the decedent was a nonresident of Kentucky?

The exemption for a beneficiary of a nonresident decedent’s estate is prorated based on the exemption of a resident decedent and is in the proportion to the net value of the property subject to tax in Kentucky before federal estate taxes to the total property transferred by the decedent.

Prior Year Inheritance and Estate Tax Forms

Additional Resources

Guide to Kentucky Inheritance & Estate Taxes

Pay Inheritance and Estate Tax

Mail a check or money order made payable to "KY State Treasurer" to
KY Department of Revenue
Frankfort, KY 40620

Overnight Address
Kentucky Department of Revenue
501 High Street
Frankfort, KY 40601-2103

All tax payment and e-file options

Affidavit of Exemption

If all taxable assets pass to exempt beneficiaries, and a Federal Estate and Gift Tax Return is not required, an Affidavit of Exemption will be accepted by the court for final settlement and closing of the administration of an estate. It is not necessary to file a No Tax Due Inheritance Tax Return with the Department of Revenue. If an Affidavit of Exemption is submitted to the Court, do not send a copy of the affidavit to the Kentucky Department of Revenue.

Filing and Payments

A tax return must only be filed by the personal representative when any part of the estate passes to taxable beneficiaries or a Federal Estate and Gift Tax Return is required to be filed.