Kentucky is one of only a handful of states that still collects an inheritance tax, and the amount owed depends entirely on your relationship to the person who died. A valid Kentucky will needs your signature and two witnesses under KRS 394.040. Without a will, state law, not your family, decides who inherits.
Whether you live in Louisville, Lexington, or a small town in the Bluegrass State, understanding Kentucky's inheritance tax classes is the one piece of estate planning that catches people off guard the most. This guide covers the tax, the will requirements, and the tools that reduce both cost and confusion for your family.
Does Kentucky Have an Inheritance Tax?
Yes. Kentucky has no separate state estate tax, but it does impose an inheritance tax based on who receives the property, according to the Kentucky Department of Revenue. Close relatives (Class A, including a surviving spouse, parents, children, grandchildren, and siblings) are fully exempt and owe nothing. Class B beneficiaries (nieces, nephews, aunts, uncles, and in-laws) receive a smaller exemption and pay tax at graduated rates above it. Class C beneficiaries (everyone else, including unrelated friends and distant relatives) receive an even smaller exemption and pay the highest rates. A discount is available if the tax is paid within nine months of death, and installment payment is available for larger tax bills. Because the class of the beneficiary, not just the size of the estate, drives the tax, two people leaving identical estates can produce very different tax bills for their heirs.
What Happens Without a Will in Kentucky
If you die intestate in Kentucky, the estate passes under a fixed statutory formula rather than your wishes. A surviving spouse typically receives a share alongside children, with the exact division depending on how many children survive and whether they are also the spouse's children. Unmarried people without children usually see the estate pass to parents, then siblings. Intestacy does not let you choose who inherits, does not name a guardian for minor children, and cannot direct assets to a friend, unmarried partner, or charity. A will is the only way to override these defaults.
How to Make a Valid Will in Kentucky
Under KRS 394.040, a Kentucky will must be in writing, signed by the testator (or by someone else in the testator's presence and at the testator's direction), and, unless entirely handwritten by the testator, signed by at least two credible witnesses in the presence of the testator and each other. Kentucky also disqualifies a gift to an interested witness (someone who is also a beneficiary) in some circumstances, so choosing disinterested witnesses avoids a later fight over a specific bequest. writing your own will with the correct signing order built in removes this risk from the start.
Wills, Trusts, and the Inheritance Tax
A revocable living trust does not eliminate Kentucky's inheritance tax, since the tax is based on who receives the property, not whether it passed through probate. What a trust does change is privacy and speed: assets in a properly funded trust bypass the probate court entirely and can reach beneficiaries faster. Reading the difference between a will and a trust helps you separate the two goals (avoiding tax versus avoiding probate) since a single document rarely does both.
A Worked Example: Leaving Money to a Niece
Imagine a Kentucky resident leaves 100,000 dollars to a niece (a Class B beneficiary) and the same amount to a son (a Class A beneficiary). The son owes no Kentucky inheritance tax. The niece owes tax on the amount above her small exemption, at rates that climb with the size of the gift. Knowing this in advance lets a person either adjust the gift amount, set up life insurance to cover the niece's tax bill, or accept the cost as part of an intentional decision, rather than surprising the family after the fact.
Financial and Health Care Powers of Attorney
A financial power of attorney names someone to pay bills, manage investments, and handle property if you become unable to do so, and can be durable (remaining effective through incapacity) or springing (activating only once incapacity is certified). A health care power of attorney and living will let you document treatment preferences and name a decision-maker, reducing the burden on family during a medical crisis.
Common Mistakes to Avoid
- Assuming Kentucky has no inheritance tax because it has no estate tax
- Naming an inheriting beneficiary as one of your two witnesses
- Leaving a large gift to a niece, nephew, or friend without planning for the resulting tax
- Believing a trust removes the Kentucky inheritance tax obligation
- Failing to name a guardian for minor children in the will itself
FastWill's online will package builds a Kentucky-compliant will with the correct witness structure, and you can layer in powers of attorney or a trust once your plan is in place. Compare plans and pricing to choose the right level of coverage.
Frequently Asked Questions
Who pays Kentucky's inheritance tax?
The beneficiary, not the estate. Class A beneficiaries (spouse, children, parents, grandchildren, siblings) are exempt. Class B and Class C beneficiaries owe tax above smaller exemptions, at rates that increase with the amount received.
How many witnesses does a Kentucky will need?
At least two credible witnesses, unless the will is entirely handwritten by the testator, per KRS 394.040.
Can a beneficiary also serve as a witness to a Kentucky will?
It is risky. Kentucky law can void a gift to an interested witness in certain circumstances, so choosing witnesses who are not receiving anything under the will is the safer approach.
Does a trust avoid Kentucky's inheritance tax?
No. The inheritance tax is based on the beneficiary's relationship to the deceased, not on whether the property passed through probate or a trust.
What happens if a Kentucky resident dies without a will?
State intestacy law decides who inherits, typically a surviving spouse and children in fixed shares, and a court appoints a guardian for minor children without input from the family.
