Why There’s No Estate Tax in Kentucky
Learn why there’s no Kentucky estate tax, how estate tax differs from inheritance tax, and what practical steps you can take.
There’s no estate tax in Kentucky—and there’s history behind it. The state once tied its estate tax to a federal credit. When Congress phased out that credit beginning in 2005, it effectively disappeared and hasn’t returned.
Estate Tax vs. Inheritance Tax (Big Difference)
An estate tax is paid by the estate before assets are distributed. An inheritance tax is paid by certain heirs after they receive assets. Kentucky doesn’t levy an estate tax, but it does impose an inheritance tax on some beneficiaries. Close relatives (like spouses, children, grandchildren, parents, and siblings) are exempt; others may owe tax, sometimes up to 16%.
Before 2005, states could “pick up” a credit against the federal estate tax. The 2001 federal tax law phased out that credit, and Kentucky’s linked estate tax went dormant. Later federal legislation cemented the change, keeping the state estate tax at zero unless Kentucky enacts a new stand-alone tax—which it hasn’t.
Kentucky’s inheritance tax remains in force, and the state updates it periodically. For example, the Department of Revenue’s 2025 guidance reiterates how transfers to non-exempt beneficiaries can be taxable, including certain gifts made within three years of someone’s passing. Beneficiaries in “Class B” and “Class C” may face exemptions as low as $1,000 or $500 with graduated rates up to 16%.
Don’t Forget Federal Rules
Separate from the state picture, the federal estate tax can apply to very large estates. For 2025, the federal exclusion is $13.99 million per person, meaning only amounts above that threshold face federal estate tax. That’s why most families never encounter a federal estate tax bill.
Practical Takeaways for the Estate Tax in Kentucky
- The estate itself doesn’t pay a state-level levy.
- Some heirs may owe Kentucky inheritance tax, depending on their relationship and what they receive.
- Large estates should still review federal thresholds when planning.
Understanding the distinction between estate and inheritance taxes helps you map out who might owe what. With the estate tax in Kentucky off the table—and inheritance tax rules focused on non-exempt beneficiaries—you can structure gifts and bequests with clarity and fewer surprises for loved ones.
(Read More: Learn about revocable trusts in Kentucky versus Nevada.)