Kentucky Inheritance Tax: What It Is and Who Pays
The Kentucky inheritance tax affects estate planning. Understand its implications and explore strategies to minimize liabilities.
Kentucky is one of a few states that still taxes certain inheritances. The rules hinge on your relationship to the person who has passed and the value you receive. Understanding how the Kentucky inheritance tax works can help families plan with fewer surprises.
Kentucky does not impose a separate estate tax on the estate itself. Instead, the Kentucky inheritance tax is a tax on the right to receive property, and the amount owed depends on who receives it. Two heirs can face different outcomes on the same asset, depending on their relationship to the person who passed.
Kentucky adopted an inheritance tax in 1906, making it one of the state’s oldest General Fund taxes. Over time, lawmakers refined exemptions and rates. A major update in 1995 fully exempted “Class A” beneficiaries and expanded that class to include siblings alongside spouses, children, stepchildren, grandchildren, and parents. This change shifted the burden toward more distant relatives and unrelated heirs, where the tax still applies today.
Kentucky groups beneficiaries into classes. Class A beneficiaries are fully exempt. That generally includes a spouse, children, stepchildren, grandchildren, parents, brothers, and sisters. No return is required when only Class A beneficiaries inherit; courts often accept an affidavit of exemption instead of a tax filing.
Class B beneficiaries include certain relatives such as nieces, nephews, aunts, uncles, sons-in-law, daughters-in-law, and great-grandchildren. They get a small exemption and then pays graduated rates. Class C is everyone else not in A or B. They get an even smaller exemption and faces slightly higher starting rates.
Rates and Exemptions Under the Kentucky Inheritance Tax
For Class B beneficiaries, the exemption is $1,000, with tax rates ranging from 4% up to 16% based on the taxable amount. For Class C beneficiaries, the exemption is $500, and rates run from 6% to 16%. These rates apply to the portion above the class-specific exemption, after considering allowable deductions.
Gifts and Certain Assets
Transfers made close to someone’s passing can still count for the inheritance tax. Kentucky statutes address transfers in contemplation of passing, revocable arrangements, and certain contracts that pay at or after passing. Specific exemptions exist for some retirement accounts and benefits.
Filing Basics for the Kentucky Inheritance Tax
When only exempt beneficiaries inherit, many estates use an affidavit of exemption for court purposes. If a taxable beneficiary or organization receives assets, the Kentucky inheritance tax return (Form 92A200) is generally required. The form’s instructions explain who must file, what’s taxable, and how to calculate the tax.
Practical Tips for Planning
- Map out potential heirs by class (A, B, or C). It clarifies who might owe tax.
- Check exemptions and rate brackets for Class B and Class C transfers. Even small changes can shift liability.
- Know the forms: affidavit of exemption when only Class A inherits, and Form 92A200 when tax may apply.
The Kentucky inheritance tax centers on relationships, amounts, and timing. With a clear grasp of classes, exemptions, and filing steps, families can prepare documentation early and reduce uncertainty. A little organization—well before any transfer—goes a long way toward smoother administration.
(Read More: Learn about revocable trusts in Kentucky versus Nevada.)