Kentucky Inheritance Tax: What to Expect If You Are a Beneficiary

If you inherit real or personal property located in the state of Kentucky, or money or other types of property owned by someone who was a Kentucky resident at the time of death, you may be subject to the Kentucky inheritance tax. This is a tax on your right to receive property from the decedent, and is different from the estate tax, which is a tax on the value of all the property left in the decedent's estate.

The Kentucky inheritance tax depends on your relationship to the deceased. According to the Kentucky Department of Revenue, normally the closer your relationship the greater is the amount of the exemption you can claim and the smaller is the tax rate. For example, the surviving spouse is exempt from the inheritance tax.

Classes of Beneficiaries

For purposes of determining the exemptions and tax rates for the Kentucky inheritance tax, beneficiaries are grouped into three classes.

Class A beneficiaries are completely exempt from the inheritance tax. This group includes the surviving spouse, children and adopted children if raised by the decedent during infancy, stepchildren, grandchildren, parents, brothers and sisters, and half brothers and sisters.

Class B includes the decedent's nieces and nephews, son and daughter-in-law, aunts and uncles, and great grandchildren. These persons have a $1,000 exemption and the value of the inheritance received over that amount is subject to progressive tax rates of from 4% to 16%.

Class C covers all beneficiaries not included in Classes A and B. This would include cousins, and great nieces and great nephews. These beneficiaries are allowed a $500 exemption with tax rates of from 6% to 16%.

When the decedent was not a resident of Kentucky but owned real or personal property in Kentucky that is subject to the inheritance tax, the exemptions are prorated. This prorated exemption is based on the proportion of the net value of the property subject to tax in Kentucky, before the deduction for the federal estate tax, to the value of the total property transferred by the decedent.

What property is taxable?