1. Home
  2. Estate Tax Planning

Estate Tax Planning

KENTUCKY ESTATE TAX PLANNING ATTORNEYS
As you plan for the future, you should consider how taxes will have an impact on your estate when the time comes for the assets in your estate to be distributed. Tax planning is a very complicated area of the law that requires the skill of an attorney experienced in estate planning. Tax planning is individualized for each person, as we all have unique financial situations. Upon someone’s passing, that person’s estate may be large, or it could be very small. Some estates qualify for tax exemptions, and some don’t. Only an attorney can help you determine if you qualify for such exemptions.

In Kentucky, estate taxation involves the imposition of both the federal estate tax and the Kentucky inheritance tax. These two taxes are often referred to collectively as “death taxes.” These taxes are imposed on deceased individuals who own property at the time of their death. As with most taxes, the amount that an estate will be taxed is dependent upon the value of the property in the estate.

THE ESTATE TAX
On January 1, 2013, the federal estate tax was set at a maximum deduction of $5,250,000. This means that individuals can exclude up to this amount from their estate (this includes gifts given during one’s lifetime). Estates for the average person do not come close to this generous amount, therefore, most Kentucky citizens, and most Americans, are not subject to the federal estate tax. However, for the individuals who do have very large estates, the estate tax may have an impact. The tax may be minimized with smart estate tax planning, by putting assets in trust accounts where they would not be subject to the federal estate tax. One key thing to remember is that while life insurance proceeds may be inheritance and income tax free, they count towards your federal estate tax.

While most Kentuckians will not be subject to the federal estate tax, most will be subject to Kentucky’s inheritance tax, as described below. Kentucky is one of only a handful of states that imposes an inheritance tax on beneficiaries who receive assets from a loved one’s estate.

THE INHERITANCE TAX
The inheritance tax is imposed on a beneficiary’s right to receive property from the deceased person’s estate. The amount of the inheritance tax depends on the value of the property being received. The amount is also dependent upon the beneficiary’s relationship to the deceased person. If the beneficiary is a close family member, such as a spouse or child, there is a greater exemption amount, in contrast to situations where the beneficiary is not a family member at all.
Kentucky has three classes of beneficiaries to help determine the amount of an inheritance tax, as defined below:

  • Class A – surviving spouse, parent, child, brother, sister, grandchild, half-brother, and half-sister
  • NOTE – Class A beneficiaries are exempt from paying the Kentucky inheritance tax if the deceased family member was born AFTER June 30, 1998.
  • Class B – niece, nephew, half-niece, half-nephew, daughter-in-law, son-in-law, aunt, uncle and great-grandchild
  • NOTE – Class B beneficiaries receive an exemption in the amount of $1,000, and the tax rate ranges anywhere from 4% to 16%.
  • Class C – individuals in this category include any person NOT included in Class A or Class B (for example, this may include cousins or even friends of the deceased)
  • NOTE – Class C beneficiaries receive an exemption in the amount of $500 and, like with Class B beneficiaries, the tax rate ranges anywhere from 4% to 15%.

No matter what the amount of the inheritance tax comes out to be, the amount of the inheritance tax will be discounted by five percent if it can be paid within nine months of the date of the deceased’s death. This is not widely known, and it is all the more reason to allow an estate planning attorney to evaluate your situation and ensure you minimize your taxes as much as possible.

HOW TO MINIMIZE TAXATION ON YOUR ESTATE
The best way to minimize tax burdens on your estate is to effectively plan in advance for all potential consequences. As you grow older, your estate will likely grow as well. Your assets may appreciate in value and this will undoubtedly have an effect on what amount you may be taxed, if you are subject to the federal estate tax, and what tax your beneficiaries may be subject to. Many people do not realize that spouses can combine their exemptions. For example, the federal estate tax deduction limit of $5,250,000 could be doubled to $10,500,000. This is quite a substantial amount that doesn’t apply to everyone, but it is still something to consider.

As you can see by the information above, tax planning is complex, and it requires the assistance of someone who knows the ins and outs of estate and tax law. While you are certainly able to fill out Kentucky tax forms and go through the planning process yourself, if you seek the aid of an estate and tax planning attorney, you will be ensuring that you make the most out of potential exemptions, limiting the effect taxes may have on your estate. Have peace of mind knowing that you are doing everything you can do to prevent taxes from draining your estate.

CONTACT OUR OFFICE TODAY FOR A FREE CONSULTATION
Estate planning is one of the most important parts of preparing for the future, and the tax consequences of estate planning must be considered by experienced and seasoned estate planning attorneys to ensure your estate will divest in the way you want it to. The attorneys at Goeing Goeing & McQuinn have the necessary skill and years of experience in estate planning. Our well-rounded attorneys will look at all potential consequences of every choice you make during the estate planning process. Taxes can have a devastating effect on many estates, but if you plan well, you can minimize some, if not all, of these negative tax consequences. Call our office today to schedule a free consultation and allow our attorneys to evaluate your case. You can reach us by calling (859) 904-2045.