How taxes can impact estate administration in Kentucky

On Behalf of | Apr 9, 2024 | Estate Planning

Estate administration broadly involves navigating probate proceedings and fulfilling someone’s last wishes. The personal representative of a Kentucky estate must also fulfill someone’s remaining obligations that they could not meet before dying.

For example, estates typically assume responsibility for the debts of those who die. The assets in the estate typically need to go towards paying someone’s obligations before the personal representative begins distributing resources to someone’s chosen beneficiaries. Debts are only one of several obligations that can diminish the value of an estate. Taxes can also have a profound impact on a Kentucky estate.

Representatives must file tax returns

The personal representative of an estate often needs to communicate with various other parties about probate matters. Most estates require an income tax return filed on behalf of the deceased individual. If the estate administration process involves selling off or liquidating estate assets, then the representative might also need to file an income tax return on behalf of the estate. Paying those taxes is a top priority during estate administration.

Taxes can reduce the estate’s value

While income tax responsibilities are likely minimal, there are other, more sizable taxes that could be due as well. If the estate is worth millions of dollars, then there could be estate taxes to pay. While Kentucky does not collect estate taxes, the federal government does. As of 2024, any estate worth more than $13.61 million is potentially subject to estate taxes.

Kentucky does impose an inheritance tax. The estate does not pay that tax directly, but beneficiaries might need to cover inheritance tax obligations. The immediate family members of the decedent, including spouses, children, stepchildren and grandchildren, can inherit from an estate without taxes.

Those with a degree of separation, including nieces, nephews and great-grandchildren, may need to pay inheritance taxes. There is a higher inheritance tax rate that applies to other family members and institutions not exempted from inheritance tax by the law. Inheritance taxes can impose a major burden on those already coping with the grief of a loved one’s death by reducing their inheritance by as much as 16%.

Those planning their estates need to understand how the taxes that apply to estates before they can work to minimize them as much as possible. Those expecting to inherit from an estate and those helping to administer one also need to understand what taxes might affect an estate and its beneficiaries.

Learning more about the responsibilities that arise during Kentucky probate proceedings may benefit anyone with an interest in an estate. The better people understand the law, the more of an estate may pass to beneficiaries instead of into public coffers.