Kentucky Inheritance Tax

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 What Is Kentucky's Inheritance Tax?

Although Kentucky levies an inheritance tax, not everyone gets taxed. The relationship between the deceased and the beneficiaries determines this. The deceased’s estate will be taxed if they were a resident of Kentucky or owned real or tangible property there.

Who Has to Pay and Who Doesn’t

Taxes in Kentucky can be levied under three categories.

Class A is close family members. The definition of close family in Kentucky includes surviving spouses, parents, children, grandchildren, and siblings. Kentucky inheritance tax will not apply to this group.

Class B includes distant family members: uncles, aunts, nieces, nephews, great-grandchildren, and children-in-law. They are exempt for the first $1,000 in inheritances; anything after that is taxed between 4% and 16%.

Class C includes everyone else. These people may be friends, cousins, or even corporations. The first $500 is exempted, but anything more is taxed between 6% and 16%.

Inheritance Tax Returns

Kentucky has two inheritance tax forms – a short form and a long form. The short form is for simple and non-complicated taxes.

A deceased person’s estate is taxed based on its net value on the date of death. Gross value is reduced by any debts, liabilities, probate legal fees, and funeral expenses.

Filing Rules

The executor or administrator of the estate is responsible for filing the inheritance tax return and collecting the taxes from the inheritors. It is only necessary to file one tax return. In the event that the executor or administrator fails to file the return, then the inheritors are responsible.

A death tax return must be filed within 18 months of the date of death. Taxes must also be paid within that time frame. Late fees and interest will be charged if it is not paid by then. A payment plan will be set up if over $5000 is owed by the inheritors.

The executor of an estate is not required to file an inheritance tax return if there is no Kentucky or federal inheritance tax due. Instead, they will need to file an “Affidavit of Exemption” with Kentucky’s probate court to state no tax is due.

What Are the Federal Estate Tax Laws, and Have Estate Taxes Been Repealed by Congress?

Federal estate taxes are intended to tax an individual’s right to transfer property at their death. Since 2021, federal estate taxes can be imposed on estates by the federal government. These taxes can reach up to 40% of the estate’s total value.

The gross value of many estates will not exceed their lifetime exclusion, which means they will not be subject to taxes. For individuals and married couples, the lifetime exclusion for estate taxes is $11.7 million as of 2021.

An additional federal estate tax law allows for a marital deduction. It allows a decedent’s estate to pass tax-free to their living spouse.

Using the marital deduction, the estate of the first spouse passes tax-free to the surviving spouse. In this case, the value of the estate remaining after the second spouse passes away will be subject to federal or state estate taxes.

How Are Inheritance Taxes Calculated?

An inheritance tax is a tax imposed on property received by a beneficiary or an heir after the property owner passes away. In a will, the beneficiary or heir is usually a family member or close friend of the deceased.

Inheritance taxes are typically calculated based on the value of property received by the beneficiary or heir as well as the relationship between the beneficiary and decedent.

The inheritance tax is a general tax on the right of a beneficiary to receive property from an estate. In order to calculate inheritance taxes, a court may consider several factors, including:

  • Any outstanding debts which the decedent left over;
  • Whether the decedent previously made transfers to charitable organizations;
  • Whether or not the decedent made transfers to their spouse; and
  • Whether the decedent claimed certain losses, such as theft losses or investment losses.

Each state calculates inheritance tax differently. The majority of states require a minimum estate value before levying estate taxes. The value of an estate must be below this minimum value in order to avoid inheritance taxes.

Can Anything be Done to Minimize Inheritance Tax Liability?

Beneficiaries may be burdened with substantial financial burdens due to inheritance taxes. It also applies to anyone who receives property upon the death of someone else.

In many cases, tax requirements may outweigh the benefits of transferring assets using an estate distribution. Individuals can take numerous steps to minimize death tax liability for beneficiaries receiving property or assets.

There are several possible approaches to reducing inheritance and estate taxes, which may include:

  • The transfer of assets prior to an individual’s death using financial and legal mechanisms such as:
  • Purchasing life insurance for the estate holder, which may serve to offset some of the costs;
  • Inquiring about different inheritance and estate tax payment options; and
  • Creating a family trust, which sometimes allows transfers to be made to family members at less than full value.

A person who wants to minimize their tax liability should not attempt to avoid their tax liability by evading taxes. If an individual legally owes taxes, paying those taxes is in their best interests.

What Are Some Other Issues Connected with Inheritance Taxes?

Inheritance and death taxes are often associated with various legal violations, disputes, and issues. Each estate is unique and different, so the issues may vary from case to case.

Tax laws vary from state to state, as previously mentioned. Inheritance and death taxes often involve the following legal issues:

  • Tax evasion or tax fraud; and
  • The non-payment of taxes.

An individual who attempts to avoid paying taxes altogether is accused of tax evasion or tax fraud. Individuals can take steps to legally minimize their inheritance and death tax liability.

Using fraud to reduce an individual’s tax liability is illegal, however. An individual may be liable for death taxes if they intentionally defraud or deceive the government or a tax agent.

This type of fraudulent behavior can often result in criminal charges. In many cases, criminal punishments may result in fines or other penalties.

Individuals may also incur consequences if they fail to pay inheritance or death taxes. If taxes are intentionally not paid, the party responsible for handling them may also face legal consequences.

Contacting an Attorney

If you are uncertain about your tax obligations, please consult a Kentucky inheritance attorney. Any delays in filings will be expensive. If you would like to lower your potential inheritors’ liabilities, an estate lawyer near you may help you find exemptions.

You can use many estate planning tools to ensure that the federal or state governments do not tax your estate. Estate attorneys can help you plan your estate and protect your assets upon your death.

Establishing trusts or making gifts throughout your lifetime can help you avoid estate taxes. Your Kentucky attorney can also draft any estate planning documents. Use LegalMatch today to find the right Kentucky estate attorney for your needs. You will not want to get into tax trouble with the IRS. Instead, use LegalMatch to let an attorney handle your tax issues.


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