Understanding Inheritance Taxes: What Northern Kentucky Families Need to Know Before Passing Down Assets
When families sit in our Crestview Hills office, they usually ask some version of this question:
“Eric, are my kids going to get hit with a huge tax bill when I’m gone?”
It’s a fair question. You’ve worked hard your whole life. You’ve saved. You’ve invested. Maybe you’ve paid off your home. And the last thing you want is for your children to inherit a financial headache instead of a blessing.
The honest answer?
It depends.
Not because we’re trying to dodge the question — but because inheritance taxes depend on what you own, how you own it, how much you own, and where you live when you pass away.
Here in Northern Kentucky and the Greater Cincinnati area, most families will not owe federal estate tax. But that doesn’t mean taxes aren’t part of the bigger estate planning conversation.
Let’s walk through what really matters — in plain English.
Estate Taxes: Will Your Estate Owe Federal Tax?
There are three things we can’t predict:
When you’ll pass away
What your assets will be worth at that time
What the federal estate tax exemption will be
Over the last 25 years, the federal estate tax exemption has swung dramatically — from under $1 million to over $15 million per person.
As of 2026, the federal estate tax applies only to estates exceeding roughly $15 million per individual (or about $30 million for married couples, with proper planning).
That means the vast majority of families in Kenton County, Boone County, and Campbell County won’t owe federal estate tax.
But here’s where many families get caught off guard:
Tax laws change.
Married couples must plan properly to preserve both exemptions.
Kentucky and Ohio have different inheritance rules.
Estate tax is only one piece of the puzzle.
Income tax and capital gains tax often matter more than estate tax.
That’s why real Life & Legacy Planning looks at each asset individually — not just your total net worth.
Cash & Bank Accounts: The Simple Case
If you leave your daughter $50,000 in your savings account, she generally receives the full $50,000.
No federal income tax.
Simple.
The only wrinkle? If the account earns interest after your death but before distribution, that interest is taxable to whoever receives it.
But the principal amount itself? Tax-free inheritance.
This is one reason we often recommend keeping a reasonable amount of liquidity in an estate plan — it gives flexibility without tax complexity.
Investment Accounts: The “Step-Up in Basis” Advantage
Now we get into one of the most powerful (and under-understood) tools in estate planning: the step-up in basis.
Here’s how it works.
Let’s say you bought stock years ago for $10,000. Today, it’s worth $100,000.
If you sold it during your lifetime, you’d owe capital gains tax on that $90,000 increase.
But if your child inherits that stock when you pass away?
Their “basis” resets — or “steps up” — to the fair market value on the date of your death.
So if they sell it immediately for $100,000, they owe zero capital gains tax.
That lifetime appreciation essentially disappears for tax purposes.
This is why, in some cases, it can be more tax-efficient to hold appreciated assets until death rather than gifting them during life.
If you gift appreciated stock now, your child inherits your original $10,000 basis — meaning they’d owe capital gains on $90,000 when they sell.
This is where strategic estate planning matters. The right move isn’t always obvious.
Retirement Accounts: Where Taxes Get Tricky
Retirement accounts like:
401(k)s
Traditional IRAs
403(b)s
…do not receive a step-up in basis.
Instead, they are income-tax time bombs if not planned properly.
If your daughter inherits a $500,000 traditional IRA, she will owe ordinary income tax on every dollar she withdraws.
And under the SECURE Act, most non-spouse beneficiaries must withdraw the entire account within 10 years of your death.
That compressed timeline can push beneficiaries into higher tax brackets — especially if they are in peak earning years.
We’ve seen this firsthand with families in Cincinnati and Northern Kentucky who inherit retirement accounts while juggling mortgages, college tuition, and careers.
Spouses have more flexibility — they can roll inherited retirement accounts into their own IRA and stretch distributions.
Roth IRAs, on the other hand, are typically inherited income-tax-free (though still subject to the 10-year rule).
This is why we often evaluate whether Roth conversions make sense as part of long-term tax planning.
Life Insurance: Usually Income-Tax Free
Life insurance is generally one of the cleanest assets to pass on.
If you have a $1 million policy, your beneficiary usually receives the full $1 million — income-tax-free.
But here’s the nuance:
If you own the policy personally, the death benefit may still count toward your taxable estate for estate tax purposes.
For most families in Northern Kentucky, this isn’t a problem.
But for higher-net-worth families, we may recommend using an Irrevocable Life Insurance Trust (ILIT) to remove it from the taxable estate.
Again, strategy depends on your numbers and your goals.
Kentucky Inheritance Tax: What About That?
Kentucky does not have an estate tax.
However, Kentucky does have an inheritance tax that applies depending on the relationship between the deceased and the beneficiary.
Here’s the key:
Spouses, children, grandchildren, parents, and siblings are generally exempt.
More distant relatives (like nieces, nephews, or friends) may owe inheritance tax.
Ohio, by contrast, repealed its estate tax years ago.
If you own property in multiple states, coordination matters.
We regularly help families think through cross-border estate issues between Kentucky and Ohio — especially in the Greater Cincinnati region.
Why Strategic Estate Planning Matters More Than Ever
The biggest mistake we see?
Families thinking estate planning is just about “having a will.”
Real planning asks:
Which assets should go to which beneficiaries?
Should retirement accounts go to a lower-income heir?
Should appreciated stock be held until death?
Does a trust make sense?
Should Roth conversions be considered?
Are beneficiary designations coordinated properly?
When estate plans fail, it’s rarely because someone didn’t care.
It’s usually because no one looked at the full tax picture.
Protecting Your Family Legacy in Northern Kentucky
At Freedom Law Services, we don’t just draft documents and send you on your way.
We build Life & Legacy Plans that:
Keep your family out of court and conflict
Minimize tax surprises
Coordinate assets strategically
Protect your spouse
Protect your children
Protect your time and your money
And because tax laws change — sometimes dramatically — we stay in relationship with our clients. Estate planning isn’t one-and-done. It evolves as your life evolves.
You deserve more than a stack of documents.
You deserve a plan that works when your family needs it most.
Final Thought: Don’t Leave a Tax Puzzle Behind
You’ve spent a lifetime building something meaningful.
With thoughtful estate planning, you can ensure your legacy is a gift — not a complicated tax problem.
Book a free 15-minute Discovery Call with Freedom Law Services today in our Crestview Hills, KY office. Together, we’ll create a Life & Legacy Plan that protects your time, your money, and — most importantly — your family.
Call us at (859) 344-6742 or visit www.FreedomLawServices.com/call-today to book your discovery call today.
This article is a service of Freedom Law Services. We don’t just draft documents; we ensure you make informed, empowered decisions about life and death for yourself and the people you love. That’s why we offer a Family Wealth Planning Session™. During the session, you will get more financially organized than ever before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this valuable session at no charge.
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you seek legal advice specific to your needs, such advice services must be obtained independently, separate from this educational material.
