The changes to federal estate tax law brought by the Tax Cut and Jobs Act of 2017 won’t affect Kentucky state law. That’s because Kentucky hasn’t had an estate tax since 2005.
Kentucky is, however, one of only six states that has an inheritance tax – joining Nebraska, Iowa, Pennsylvania, New Jersey and Maryland.
How Kentucky’s inheritance tax works
Tax is paid on inherited property. If it is in Kentucky, then it is subject to an inheritance tax. Property inherited outside of Kentucky is not subject to the tax. Property in Kentucky inherited by non-residents is subject to the tax.
Beneficiaries are broken into three classes. Class A beneficiaries don’t have to pay any inheritance tax. Class B beneficiaries pay a tax of 4 percent to 16 percent but qualify for a $1,000 exemption. Class C beneficiaries pay a 6 percent to 16 percent inheritance tax but qualify for a $500 exemption. If the tax is paid within nine months of the death, there is an additional 5 percent discount.
Class A beneficiaries are:
- Child or grandchild
- Brother or sister
- Half-brother or half-sister
Class B beneficiaries are:
- Niece and nephew
- Half-niece and half-nephew
- Son-in-law and daughter-in-law
- Aunt and uncle
Class C beneficiaries include anyone not listed in Class A and Class B.
Examples of taxable property
Some examples of taxable property include:
- Real estate
- Cash, stocks and bonds
- Bank accounts and certificates of deposit both within and outside Kentucky
- Life insurance
- Unpaid balance of mortgages
- Household goods, jewelry, antiques
- Livestock, crops and farm machinery
- Automobiles, boats, travel trailers
The federal government does not have an inheritance tax, although it does have an estate tax. Officials recently released the federal estate tax limit for 2019: $11.4 million per person, up from $11.18 million in 2018 – and up from $5.5 million in 2017.