LB 310 Changes to Inheritance Tax
After many years of debate and proposals, the Nebraska Unicameral passed LB 310 in this past session, which was signed by the governor and is now law. LB 310 provides several small changes which could have a big impact on your estate planning.
Nebraska is one of only six states which imposes an inheritance tax. Iowa recently repealed its inheritance tax, with the tax being completely phased out by 2024. In April 2022, the Platte Institute released a report showing Nebraska has the 12th highest combined tax burden in the US.
The Nebraska inheritance tax rate is based on the beneficiary’s relationship to the decedent. It breaks beneficiaries down into three classes. Based on the beneficiary’s class, the tax exemption and tax rate differ.
Class | Beneficiary Relationship | Exemption | Tax Rate |
1 | Children/Grandchildren Siblings Parent/Grandparent | $40,000 | 1% |
2 | Niece/Nephew Aunt/Uncle | $15,000 | 13% |
3 | All others (non-relatives) | $10,000 | 18% |
There is also a fourth class of beneficiaries—those who are entirely exempt from inheritance taxes. This class includes surviving spouses and charity beneficiaries.
In an effort to reduce the burden on families after the loss of a loved one, LB 310 works in two ways to reduce inheritance taxes. Under LB 310, the exemption amount for all beneficiaries increases, and the tax rate decreases. Starting on January 1, 2023, the tax exemptions and rates will be as follows:
Class | Beneficiary Relationship | Exemption | Tax Rate |
1 | Children/Grandchildren Sibling Parent/Grandparent | $100,000 | 1% |
2 | Niece/Nephew Aunt/Uncle | $40,000 | 11% |
3 | All others (non-relatives) | $25,000 | 15% |
Additionally, LB310 provides that all beneficiaries under 21 years of age at the time of the decedent’s death, regardless of class, are completely tax-free.
Let’s take an example to show the effect of this change:
Susie died with a net estate of $1,000,000. Susie had five beneficiaries who shared her estate equally: two children, a nephew, a neighbor, and her church. Each received $200,000 under Susie’s will. Under current law, the breakdown of inheritance tax is as follows:
Beneficiary | Class | Inheritance | Exemption | Taxable Amount | Tax Rate | Tax Due |
Child One | 1 | $200,000 | $40,000 | $160,000 | 1% | $1,600 |
Child Two | 1 | $200,000 | $40,000 | $160,000 | 1% | $1,600 |
Nephew | 2 | $200,000 | $15,000 | $185,000 | 13% | $24,050 |
Neighbor | 3 | $200,000 | $10,000 | $190,000 | 18% | $34,200 |
Church | Charity | $200,000 | Unlimited | $0 | N/A | $0.00 |
Total | $61,450 |
And here is the breakdown of tax under LB310:
Beneficiary | Class | Inheritance | Exemption | Taxable Amount | Tax Rate | Tax Due |
Child One | 1 | $200,000 | $100,000 | $100,000 | 1% | $1,000 |
Child Two | 1 | $200,000 | $100,000 | $100,000 | 1% | $1,000 |
Nephew | 2 | $200,000 | $40,000 | $160,000 | 11% | $17,600 |
Neighbor | 3 | $200,000 | $25,000 | $175,000 | 15% | $26,250 |
Church | Charity | $200,000 | Unlimited | $0 | N/A | $0.00 |
Total | $45,850 |
As you can see, LB310 results in these beneficiaries paying a combined $15,600 less in inheritance taxes! This matters for an additional reason many people don’t realize. Most Wills/Trusts direct that the Estate/Trust pay inheritance taxes, not the individual beneficiary. This means that under LB310 each beneficiary would see their distribution from the estate increase by $3,120.
This reduction in tax rates may open up some opportunities in your estate planning that were not available or tax-efficient before. If you would like to discuss how this new law will impact your estate plan, please give Carlson & Blakeman, LLP a call at (402) 858-0996.