Nebraska Inheritance Tax

Nebraska imposes an inheritance tax on property transferred from deceased Nebraska residents or from nonresidents who owned property in the state. The amount of tax due is based on how closely the inheritor and deceased person were related and how much the inheritor receives.

The Executor’s Job

As an executor or administrator, you’ll need to deal with Nebraska inheritance tax if you are handling the estate of:

• a Nebraska resident, or
• a nonresident who owned real estate or tangible property located in the state.

If an inheritance tax return is required, the executor or administrator of the estate is responsible for filing it and collecting the tax from the inheritors who owe it. Just one return is filed, even if several inheritors owe inheritance tax.

Who Owes Inheritance Tax

The surviving spouse is exempt from Nebraska’s inheritance tax. Other inheritors are divided into groups.

Immediate relatives. Close relatives of the deceased person get a $40,000 exemption from Nebraska inheritance tax, meaning that the first $40,000 of what they inherit isn’t subject to tax. This applies to the deceased person’s:

• father or mother
• grandfather or grandmother
• brother or sister
• son, daughter, or any other lineal descendant (including any legally adopted lineal descendant)
• any person to whom the deceased for not less than ten years prior to death stood in the acknowledged relation of a parent, or the spouse or surviving spouse of any such persons

If any of these persons inherits more than $40,000, the tax rate is one percent of the clear market value of the property over that amount.

Remote relatives. This category includes the deceased person’s:

• aunt, uncle, niece, or nephew related by blood or legal adoption
• any lineal descendent of these persons, and
• the spouse of any of these persons.

These inheritors get an exemption amount of $15,000 and pay tax of 13% on amounts above that.

Charitable organizations. Transfers to charitable, religious, or educational organizations are not taxed, if certain requirements are met, including that the property transferred is for use within Nebraska.

Everyone else. All other inheritors pay tax on amounts over $10,000, at a rate of 18%.

Exempt Property

Certain kinds of assets are exempt from inheritance tax no matter who inherits them. Certain payments under employee benefits plans, for example, are not taxed. The homestead allowance and family maintenance allowance are also not subject to tax. Insurance proceeds payable to a named beneficiary, not the estate, are not taxed.

Valuing Property

The personal representative is responsible for putting a value on the deceased person’s property as of the date of death. Except for property that is specifically exempt from the tax, everything gets counted, not just the property that goes through probate. For example, include joint tenancy property, IRAs, and property that passes through a living trust instead of a will.

From the total value of the estate, you’ll  subtract liabilities of the estate, such as debts the deceased person owed, funeral expenses, and probate attorney fees and court costs. Then you’ll be able to compute the tax owed, based on the classification of the inheritors. Instructions are on the return.

Paying the Tax

The tax must be paid 12 months from the date of death. If you’re late, you’ll owe interest on the tax due, and the state may assess a penalty as well. The tax is paid to the county treasurer.

Getting Expert Help

If you need to file a state inheritance tax return, it’s a good idea to get advice from an experienced attorney. It’s not always clear, for example, just what property is taxable or which beneficiaries qualify for reduced tax rates.