Nebraska Inheritance Tax

Nebraska is one of a handful of states that collects an inheritance tax. If you are a Nebraska resident, or if you own real estate or other tangible property in Nebraska, the people who inherit your property might have to pay a tax on the amount that they inherit. Whether they will have to pay the tax, and how much they will have to pay, depends on how closely they were related to you—the closer the family connection, the lower the tax rate.

Nebraska Inheritance Tax Exemptions and Rates

Surviving spouses are exempt. The surviving spouse is exempt from Nebraska's inheritance tax, no matter how much the spouse inherits. (Neb. Rev. Stat. Ann. § 77-2003.)

Charitable organizations are usually exempt. Many transfers to charitable, religious, or educational organizations are also not taxed. To be exempt, the organization must meet one of the qualifying conditions set out by Nebraska law. (See Neb. Rev. Stat. Ann. § 77-2007.04.)

Close relatives pay 1% tax after $40,000. Close relatives of the deceased person are given a $40,000 exemption from the state inheritance tax. In other words, they don't owe any tax at all unless they inherit more than $40,000. If they inherit more than $40,000, a 1% tax will apply to the amount over the first $40,000. (Neb. Rev. Stat. Ann. § 77-2004.)

Close family members or "immediate relatives" of the deceased include:

• parents
• grandparents
• siblings
• children, grandchildren, and other lineal descendants (including legally adopted persons)
• the spouse of any of the family members listed above.

The category of "immediate relative" can also include someone whom the deceased essentially parented for 10 years or more. (For the exact legal requirements, see Neb. Rev. Stat. Ann. § 77-2004.)

More distant relatives pay 13% tax after $15,000. Less immediate family members are given a smaller exemption amount of $15,000. Any amount over $15,000 will be taxed at the much higher rate of 13%.

This category of "remote relatives" includes:

• aunts, uncles, nieces, or nephews related by blood or legal adoption
• any lineal descendent of aunts, uncles, nieces, or nephews
• the spouse of any of the people listed above.

(Neb. Rev. Stat. Ann. § 77-2005.)

Others pay 18% tax after $10,000. Any person or organization that doesn't fall within these categories owes inheritance tax on amounts over $10,000. The tax rate is 18%. (Neb. Rev. Stat. Ann. § 77-2006.)

Example: Annabel left $100,000 to various family members and friends when she died. She left $45,000 to her son Gabriel, $20,000 to her sister Claire, $20,000 to her nephew Allen, and $15,000 to her best friend Clark. The inheritance tax affects her loved ones as follows:

• Her son Gabriel, an "immediate relative," must pay 1% tax on $5,000 (the amount over $40,000), or $50.
• Her sister Claire, also an "immediate relative," pays nothing, since the inherited amount is under $40,000.
• Her nephew Allen, a "remote relative," must pay 13% tax on $5,000 (the amount over $15,000), or $650.
• Her friend Clark, who despite being her best friend does not fall into any of the recognized categories, must pay 18% tax on $5,000 (the amount over $10,000), or $900.

Property That Is Exempt From Nebraska Inheritance Tax

Certain kinds of assets are not subject to Nebraska inheritance tax, no matter who inherits them. Some kinds of tax-exempt property include:

• Certain payments from employee benefits plans
• Life insurance proceeds that go to a trust or named beneficiary (but not when the beneficiary is the estate)
• Money from the estate that immediate family members are entitled to under the homestead allowance or family maintenance allowance.

Filing the Nebraska Inheritance Tax Return and Paying the Tax

It's the responsibility of the executor of the estate (if there's a will) or the administrator or personal representative (if there's no will) to file a Nebraska inheritance tax return if one is required. The executor generally collects the tax from the inheritors who owe it. Even if several inheritors owe tax, only one return is necessary. Tax payments must be made within 12 months of the date of death. Executors will often seek the advice of an experienced local attorney to file the return.

Unlike other state inheritance taxes, which are administered state-wide, Nebraska's inheritance tax is collected by each county separately. For the specifics of how to pay inheritance tax to a particular county, call (or visit the website of) the treasurer of the county in which the deceased person resided. If real estate is involved, the county in which the real estate is located—if it's a different county—might be owed part of that inheritance tax, so make sure to check with each county where real estate is situated.