Kentucky Inheritance Tax: Who Actually Pays?

When a loved one passes away, financial questions often arise alongside grief. One common concern in Kentucky is whether an inheritance will be taxed—and if so, who is responsible for paying that tax. Kentucky’s inheritance tax rules are frequently misunderstood, and many people assume all inheritances are taxed. In reality, that is not the case.

Understanding how Kentucky inheritance tax works can help families plan ahead and avoid unnecessary surprises during probate.

Kentucky Has an Inheritance Tax, Not an Estate Tax

Kentucky is one of a small number of states that still impose an inheritance tax, which is different from an estate tax. An estate tax is paid by the estate itself before assets are distributed. An inheritance tax, on the other hand, is based on who receives the property, not the size of the estate.

In Kentucky, the tax is assessed against the beneficiary, not the estate. However, the personal representative of the estate is typically responsible for filing the necessary tax forms and ensuring payment before assets are fully distributed.

Who Does NOT Pay Kentucky Inheritance Tax?

Many beneficiaries are completely exempt from Kentucky inheritance tax. These individuals fall into what the state calls Class A beneficiaries, which include:

• Surviving spouses
• Children (biological or adopted)
• Stepchildren
• Grandchildren
• Parents
• Siblings

If you are a Class A beneficiary, you do not owe any Kentucky inheritance tax, regardless of the value of what you inherit. This exemption covers the majority of family inheritances and often means no inheritance tax is due at all.

Who MAY Have to Pay Inheritance Tax?

Beneficiaries who are not immediate family members may be subject to Kentucky inheritance tax. These individuals fall into Class B or Class C categories.

Class B beneficiaries include:

• Nieces and nephews
• Aunts and uncles
• Half-relatives

Class B beneficiaries are entitled to a limited exemption, after which inheritance tax applies at graduated rates.

Class C beneficiaries include:

• Friends
• Distant relatives
• Unrelated individuals
• Certain organizations that are not tax-exempt

Class C beneficiaries have a much smaller exemption and are taxed at higher rates.

How Much Is the Kentucky Inheritance Tax?

Kentucky inheritance tax rates vary depending on the beneficiary class and the value of the inheritance. After applicable exemptions:

• Class B beneficiaries are taxed at graduated rates that can reach several percentage points.
• Class C beneficiaries face higher rates that can exceed 15% for larger inheritances.

The tax is calculated based on the fair market value of the inherited property at the time of the decedent’s death.

When Is the Tax Due?

Kentucky inheritance tax returns are generally due within 18 months of the date of death. If the tax is paid within nine months, the beneficiary may qualify for a small discount. Late payments can result in interest and penalties.

Because deadlines apply even when probate is ongoing, it is important for personal representatives and beneficiaries to stay organized and informed.

Are There Ways to Reduce or Avoid Inheritance Tax?

In many cases, inheritance tax can be minimized—or avoided entirely—through careful estate planning. Common strategies include:

• Leaving assets to Class A beneficiaries
• Using trusts or lifetime gifts
• Structuring beneficiary designations properly

The right approach depends on family structure, asset types, and long-term goals.

Why Legal Guidance Matters

Inheritance tax rules can be confusing, especially during an already difficult time. Mistakes in classification, valuation, or filing can lead to unnecessary taxes or delays in distributing assets.

At Hoffman Walker & Knauf, we help clients understand Kentucky inheritance tax obligations and develop estate plans that protect loved ones. Whether you are administering an estate or planning ahead, experienced legal guidance can make the process smoother and more predictable.

If you have questions about inheritance tax or estate planning in Kentucky, contact Hoffman Walker & Knauf to discuss your options with confidence.