If you inherit property from a Nebraska resident or a person who owned property in Nebraska, you could be subject to the Nebraska state inheritance tax. This tax is levied on the value of property that passes to the beneficiaries and is different from the federal estate tax, which is charged on the net value of the decedent’s estate. There are exemptions based on your relationship to the decedent. The closer your relationship, the higher will be the amount exempt from tax and the lower will be your tax rate.
Exemptions
According to Professor J. David Aiken writing for the University of Nebraska in “Cornhusker Economics”, the Nebraska inheritance tax exemptions and rates were changed effective January 1, 2008. According to the legislation, the surviving spouse is completely exempt from the inheritance tax.
Close relatives including the decedent’s parents, grandparents, brothers and sisters, children and grandchildren, both biological and adopted, and the spouses of any of these relatives are entitled to a $40,000 exemption and are subject to a 1% tax on the value of their inheritance in excess of that amount.
Other beneficiaries including the decedent’s aunts, uncles, nieces, or nephews, related to the decedent by blood or legal adoption, and any lineal descendants of these persons are entitled to a $15,000 exemption, with a tax rate of 13% on the excess.
Beneficiaries who are not related to the decedent have an exemption of $10,000 and are subject to tax at a rate of 18% on the value of property transfers in excess of that amount. But transfers to organizations operating exclusively for religious, charitable, public, scientific, or educational purposes are exempt from the inheritance tax. Bequests to a political subdivision or government agency of the United States or Nebraska are also completely tax free.
How the Nebraska inheritance tax works
According to the Nebraska Department of Revenue, the inheritance tax is administered by the County Court of the county in which the decedent resided or in which the real or personal property is located. The tax is levied as a percentage of the clear market value of the property, including life insurance proceeds, transferred by will or by the intestate laws, for any person who was a resident of Nebraska or who possessed nonexempt property in the State of Nebraska.
An inventory of the decedent’s property is prepared and presented to the Country Court. Certain amounts are exempt and certain deductions from the estate can be claimed in determining the net value of the estate.
There is an exemption for the homestead allowance of $7,500 for the surviving spouse domiciled in Nebraska. If there is no surviving spouse, each minor or dependent child of the decedent is entitled to the homestead allowance divided by the number of children.
An exemption for the value of household furniture, automobiles, furnishings, appliances and personal effects of up to $5,000 is allowed if this property is actually taken from the probate or non-probate estate by the surviving spouse. If there is no surviving spouse, the exemption applies to the decedent’s adult or minor children.
A family maintenance allowance of up to $9,000 is exempt if the decedent was domiciled in Nebraska and was supporting the surviving spouse and minor children. This allowance is permitted without a court order and can be paid either in a lump sum or in installments to provide for the family during the period the estate is being administered.
Other deductions that can be taken include the decedent’s mortgage and other debts, federal estate taxes on property subject to the Nebraska inheritance tax, income and property taxes accrued up to the date of the decedent’s death, medical expenses of the decedent’s last illness that were incurred within six months of the date of death, funeral expenses, administration expenses including the commissions and fees of executors and administrators, and reasonable attorneys’ fees.
After subtracting the exemptions and deductions from the gross estate value, each beneficiary’s share of the net estate is calculated. The beneficiaries would be subject to inheritance tax to the extent their share of the net estate exceeds their respective exemption amount.
A credit can be taken for the Nebraska inheritance paid by the decedent on property received from another person who died within five years prior to the decedent’s death. This credit is applied against the amount of inheritance tax that must be paid by recipients of property from the decedent’s estate. It is allocated based on each recipient’s share of the property subject to Nebraska inheritance tax.
Filing and Payment
The executor or administrator of the estate must file an inventory of the estate property with the Country Court that has jurisdiction within three months of the date of appointment. The inheritance tax return must be filed within 12 months of the decedent’s death, and any taxes due must be paid to the Country Treasurer within that same time period. If the taxes are not paid, interest will accrue from the end of the twelve-month period until the balance is paid.
Sources:
Basha – NSBA Probate Form 500: http://probateforms.bashasys.com/nebraska
CCH Financial Planning Toolkit – Nebraska Estate Taxes: www.finance.cch.com
Nebraska Department of Revenue – Basic Provisions and Tax Base of the Nebraska Inheritance Tax Laws: www.revenue.ne.gov/tax
University of Nebraska Lincoln – Cornhusker Economics – 2007 Legislature Repeals Estate Tax and Reduces Inheritance Tax, by Professor J. David Aiken: www.agecon.unl.edu
Reference:
- Basha – NSBA Probate Form 500: probateforms.bashasys.com/nebraska
