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Do I have to pay tax on my Kentucky inheritance?

Inheritance tax is not something most people deal with every day. So if you have just inherited property from a relative, do you have to pay Kentucky inheritance tax?

It will depend on where the property is located and what your relationship to the benefactor is. If the property is located outside of the state of Kentucky, you do not have to pay Kentucky inheritance tax on it. All property that exists in Kentucky is subject to the inheritance tax, regardless of if the benefactor was a nonresident or a resident.

In regards to relationships, Kentucky classifies beneficiaries into three classes: A, B and C. Class A includes immediate family members, such as surviving spouses, children, grandchildren, parents, siblings and half-brother or half-sisters. Class B includes nephews, nieces, daughters- and sons-in-law, aunts, uncles and great-grandchildren. Class C beneficiaries include anyone else who does not fit into the Class A or B categories.

The class that a beneficiary belongs to determines how much he or she must pay; certain exemptions apply. Class A beneficiaries are exempt from paying the Kentucky inheritance tax as long as the date of death is after June 30, 1998. Class B beneficiaries are entitled to a $1,000 exemption. The tax rate is from 4 to 16 percent. Class C beneficiaries are entitled to a $500 exemption, with a tax rate from 6 to 16 percent.

If the tax owed is submitted within nine months of the benefactor's death, an additional 5 percent discount is applied. Also, if the tax liability is more than $5,000 and is submitted timely, it can be paid in 10 installments, however, interest will be charged.

Inheritance taxes should be paid timely to avoid paying additional penalties. Estate attorneys can assist beneficiaries in taking care of settling tax issues and other paperwork associated with inheritances.

Source: Kentucky Department of Revenue, "A Guide to Kentucky Inheritance and Estate Taxes," accessed Sep. 25, 2015

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