Those who have agreed to serve as personal representatives of the states in Kentucky have a long process ahead of them. They may need to attend hearings and probate court and physically secure assets. They have to communicate with a number of different interested parties and fulfill the decedent’s obligations. That process may include addressing several different types of taxes.
What common tax issues do personal representatives frequently need to address during the state administration?
Filing income taxes
It is common practice for personal representatives to file the last income tax return for a recently deceased individual. They may need to set aside estate resources to cover income tax obligations. The estate itself might also owe income taxes. If estate administration requires the liquidation of estate resources or an estate sale, revenue in excess of $600 makes an estate income tax return necessary.
Preparing for inheritance taxes
Kentucky currently assesses an inheritance tax in some scenarios. The relationship the beneficiaries have to the decedent determines what inheritance tax rules apply. There are three different classes of beneficiaries. Immediate family members who fall into Class A (spouses, children, parents, grandchildren, siblings and half-siblings) do not have to worry about inheritance taxes.
However, other family members in Class B, including nieces, nephews, half-nieces, half-nephews, sons or daughters-in-law, aunts, uncles and great-grandchildren, may need to pay between 4% and 16% of the value of their inheritances in taxes.
Cousins and anyone who doesn’t fall into the other two classes may pay between 6% and 16% in inheritance taxes. While the estate does not necessarily have to cover inheritance taxes, the personal representative has to keep records of asset distribution for tax purposes and may need to communicate with beneficiaries to inform them of their responsibilities.
Covering estate taxes
Kentucky does not collect an estate tax, but federal estate taxes may still apply. For individuals who die in 2025, the exemption threshold for federal estate taxes is $13.99 million. Any estate with a total value beyond the current threshold is subject to a progressive estate tax that can be as high as 40%. The personal representative typically needs to retain resources to cover those tax obligations on behalf of the estate.
Having support throughout estate administration and probate proceedings can help personal representatives ensure that they fulfill all of their obligations. Taxes are often the last thing on an individual’s mind when they agree to administer an estate, but handling tax matters is one of their key responsibilities.