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Articles Tagged with Kentucky tax law

documents photoIn our last post, we discussed how divorce affects an estate plan. A thorough review of all estate documents is critical post-divorce to ensure you’ve covered every conceivable scenario and changed every document necessary. Allowing an attorney to do that review for you is always in your best interest, as attorneys have a keen eye for details and wording that may escape even a close reader who does not have legal training.

Taking this matter one step backwards, though, we’re examining annulment versus divorce in this post. While both lead to the same conclusion – you’re no longer married – these two scenarios have very different consequences when it comes time to pay taxes.

Both parties may file as married at tax time if they were still legally married at the end of the calendar year. Options include filing a joint tax return, as many married couples do, or checking the married but filing separately box.

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Nathan Vinson

Nathan Vinson

By Nathan Vinson, Attorney
English, Lucas, Priest & Owsley, LLP

An Individual Retirement Arrangement (IRA) may be a vehicle available to Kentucky residents to avoid Kentucky’s inheritance tax.  The Kentucky inheritance tax is payable by the beneficiaries of a person’s estate, depending on what the beneficiary received and the relationship of the decedent to the beneficiary.

“Class A” beneficiaries are exempt from the inheritance tax and include parents, surviving spouses, siblings (whether full or half), children (including adopted children and stepchildren), and grandchildren.

“Class B” beneficiaries enjoy a partial exemption from the tax and include aunts, uncles, nephews and nieces (including by the half), daughter-in-laws, son-in-laws, and great-grandchildren (including those who are the grandchildren of adopted children and stepchildren).

All other beneficiaries are considered “Class C” beneficiaries and are afforded a nominal exemption from the inheritance tax.  With the highest rate of Kentucky’s inheritance tax being 16%, Class B and Class C beneficiaries may take a big hit if they inherit any sizable amount from the decedent’s estate.

Here is where planning opportunities arise using IRAs.

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