One of the primary goals of estate planning is to ensure the financial security of your loved ones after you pass away. However, without careful consideration, a significant portion of the assets you intend for your beneficiaries could go towards an inheritance tax.
Fortunately, with strategic planning, there are ways to minimize these taxes so that less goes towards taxes and more goes to your heirs.
Understanding Kentucky’s inheritance tax
In Kentucky, the inheritance tax rates and exemptions vary considerably based on the beneficiary’s relationship to the deceased. There are three separate classes of beneficiaries. Class A comprises close relatives such as spouses, children, grandchildren, parents and siblings who are entirely exempt from an inheritance tax. More distant heirs face steeper taxes. By understanding these details, you can structure your estate to take advantage of exemptions and minimize tax liabilities.
- A straightforward strategy to reduce inheritance taxes is to gift assets while you’re still alive. In 2024, individuals can give up to $18,000 per person per year without incurring any gift tax.
- Money paid directly to an educational institution for someone’s tuition or to a medical provider for someone’s medical expenses does not count towards Kentucky’s annual gift exclusion limit. This means you can pay for tuition or medical bills on behalf of your heirs without incurring any gift tax or affecting the size of your estate for inheritance tax purposes.
- Another alternative is a life insurance policy. If paid to the named beneficiary, the proceeds are usually exempt from inheritance taxes.
Strategic planning can help ensure that more of your assets are passed on to your loved ones. It’s important to work with someone who can help you tailor a plan that meets your specific situation and goals.