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HB 46

AN ACT relating to inheritance tax exemptions.

2026 Regular Session Introduced by Chad Aull and 3 co-sponsors

The bill broadens and clarifies Kentucky inheritance tax exemptions, especially for spouses, with staged or full exemptions for other classes and prorated nonresident rules.

to Appropriations & Revenue (H)
#deaths #taxation #inheritanceandestate #wills #trusts #andestates
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Bill Summary · HB 46

Overview

HB 46 (2026RS) from Kentucky relates to inheritance tax exemptions. The bill modifies and clarifies the exemptions chargeable against the lowest bracket of inheritable interests, with specific changes for surviving spouses, Class A/B/C beneficiaries, and nonresidents. It outlines how exemptions apply to different classes of beneficiaries and provides timelines for certain amounts to tighten or expand exemptions over time.

Purpose and intent

  • Streamline and adjust the inheritance tax exemptions available to beneficiaries under Kentucky law.
  • Clarify how exemptions apply to surviving spouses and other classes of beneficiaries, including changes tied to dates of death and residency.
  • Establish future changes to eligibility or amounts for Class B and other beneficiaries.

Key provisions and changes

  • Section 1 (KRS 140.080) reorganizes and updates exemptions against the lowest tax brackets for inheritable interests:

    • Surviving spouse: The entire value of any trust or life estate that qualifies for federal estate tax marital deductions (under 26 U.S.C. sec. 2056(b)(5) or (7)) may be included in the spouse’s inheritable interest tax-free, provided the election is correctly filed by the decedent’s personal representative (or trustee/ transferee) on or before the tax return due date (including extensions).
    • Class A beneficiaries (non-spouse) – detailed historical exemptions appear, but the text presents a series of amounts and categories (infants, mentally disabled individuals, biological/adoptive relationships, parents, children, stepchildren, grandchildren) with specific dollar amounts (mostly $20,000 or $5,000 in the previously defined structure). The proposed formatting indicates changes to lifetime exemptions for these categories, aligning with prior statutory definitions.
    • Class A beneficiaries (decedents dying on/after July 1, 1995) – phased approach over years:
    • 1995–1996: greater of the prior Class A (paragraph (1)(b)) exemption or one-fourth of each beneficiary’s inheritable interest.
    • 1996–1997: greater of the prior exemption or one-half of each inheritable interest.
    • 1997–1998: greater of the prior exemption or three-fourths of each inheritable interest.
    • After June 30, 1998: each beneficiary’s total inheritable interest.
    • Class B beneficiaries (KRS 140.070) – exemptions:
    • For decedents dying prior to January 1, 2027: $1,000 per beneficiary.
    • For decedents dying on/after January 1, 2027: each beneficiary’s total inheritable interest (i.e., no fixed minimum exemption; full exemption potential).
    • Class C beneficiaries (KRS 140.070) – fixed exemption of $500.
    • Nonresidents: If the decedent was not a resident of Kentucky, the exemption is prorated in proportion to the share of the property taxable by Kentucky relative to the entire property transferred.

  • Section 1 also makes explicit the mechanism for valid elections of the marital deduction-like treatment for the surviving spouse’s portion and the timing for filing.

Who would be affected

  • Surviving spouses of decedents: Potentially entire value of certain trusts or life estates eligible for federal estate tax marital deductions can be exempt from Kentucky inheritance tax if properly elected and filed.
  • Class A beneficiaries (non-spouse): Various family relationships (infant/mentally disabled children, parents, stepchildren, grandchildren, etc.) with adjusted exemption amounts or share-based exemptions depending on death date.
  • Class B beneficiaries: Primarily small-dollar exemptions (or, after 2027, full inheritable interest exemption per beneficiary).
  • Class C beneficiaries: Fixed $500 exemption.
  • Nonresidents with Kentucky-sourced inheritance: Exemption prorated based on Kentucky property's share of the total estate.

Procedural and timeline aspects

  • Election timing: The marital-deduction-like election for the surviving spouse’s full interest must be filed in the form prescribed by the Kentucky Department of Revenue and by the tax return due date (including extensions) or with the first tax return filed, whichever is later.
  • Effective dates: Several provisions reference specific timeframes (e.g., decedents dying after August 1, 1985; various dates for Class A adjustments starting around July 1, 1995; Class B effective date for changes to 2027). The bill also applies different exemption rules based on the decedent’s date of death.
  • Residency: Nonresident exemptions prorated in proportion to Kentucky property versus total property transferred.

Summary of impact

  • The bill consolidates and adjusts inheritance tax exemptions, with a stronger emphasis on allowing a broader exemption for spouses and a transition toward higher (or total) exemptions for certain classes of beneficiaries over time, while preserving fixed exemptions for others (Class B/C) and managing nonresident apportionment. It changes how much of an inheritance is shielded from Kentucky inheritance tax, depending on the beneficiary class, death date, and residency. The procedural filing requirements for marital-deduction-like elections are clarified to ensure validity.

Compiled from official sources — confirm details with the bill’s official record.

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