The IRS released its inflation adjustments for 2027 this week, and the headlines are about the tax brackets and the standard deduction. Buried in the same announcement are the numbers that matter for estate planning: how much you can leave at death and how much you can give during life before the federal government takes an interest. If you have an estate plan drafted more than a few years ago, or you have been thinking about giving money to children or grandchildren, here is what the new numbers mean for a Kentucky family.
Key Takeaways
For 2027, the federal estate and gift tax exemption rises to $15,480,000 per person, and the annual gift exclusion rises to $20,000 per recipient. Almost no Kentucky family will owe federal estate tax.
The tax that actually reaches Central Kentucky families is Kentucky's inheritance tax, and it changed this year: nieces and nephews joined the exempt class for deaths on or after January 1, 2026.
A gift that is free of federal gift tax can still cost you Medicaid eligibility for nursing home care. The five-year lookback does not care about the IRS limits.
What are the 2027 federal estate and gift tax numbers?
For a person who dies in 2027, the federal estate tax exemption is $15,480,000, up from $15,000,000 in 2026. The annual gift tax exclusion is $20,000 per recipient, up from $19,000. Both figures come from Revenue Procedure 2026-35, the IRS's annual inflation adjustment.
The $15 million base was set by the 2025 federal tax law, which the IRS now calls the Working Families Tax Cuts. Before that law, the exemption was scheduled to fall by roughly half at the end of 2025. The law made the higher amount permanent and indexed it to inflation, which is why it moves each year. Our earlier article on the estate tax changes in the 2025 law explains the background.
Will my family owe federal estate tax?
Almost certainly not. The federal estate tax applies at 40 percent only to the value of an estate above the exemption. A married couple can shield twice the exemption, about $30.96 million in 2027, because a surviving spouse may use the unused exemption of the first spouse to die under the portability rule in 26 U.S.C. 2010(c). Portability is not automatic. The executor must file a federal estate tax return for the first spouse, even when no tax is owed, to preserve the unused amount. For a family with a farm, a business, or land that has appreciated for decades, that filing is worth making.
If your estate is anywhere near the exemption, the planning questions are different and more detailed than this article can cover. For everyone else, the federal estate tax is not the tax to plan around.
What tax does reach Kentucky families, and what changed this year?
Kentucky has no estate tax, but it is one of the few states with an inheritance tax, and that tax is paid by the person who inherits, based on their relationship to the person who died. The 2026 General Assembly changed who pays it.
Under KRS 140.070, Class A beneficiaries pay nothing. Class A has long included a surviving spouse, parents, children and stepchildren, grandchildren, and brothers and sisters. House Bill 869, signed April 27, 2026, added nieces and nephews, including nieces and nephews of the half blood, to Class A for the estates of people who die on or after January 1, 2026. Before that change, a niece or nephew paid tax at rates from 4 to 16 percent on everything above a $1,000 exemption. Now they pay nothing.
Class B now covers sons-in-law, daughters-in-law, aunts, uncles, and great-grandchildren. They receive a $1,000 exemption under KRS 140.080 and pay 4 percent on the first $10,000 above it, rising to 16 percent on amounts over $200,000. Class C is everyone else, including friends, cousins, and unmarried partners. They receive a $500 exemption and pay 6 percent on the first $10,000, rising to 16 percent on amounts over $60,000. Transfers to charitable, educational, and religious institutions are exempt under KRS 140.060.
If you intend to leave property to a friend, a cousin, a partner you are not married to, or a child's spouse, Kentucky will tax that gift at death, and the rate reaches 16 percent quickly. That is the tax a Kentucky estate plan should be built around, not a federal estate tax you probably are not going to have to pay at today's large exemptions.
How much can I give in 2027 without filing a gift tax return?
$20,000 to each recipient, or $40,000 from a married couple to each recipient, in a calendar year. You can give that amount to as many people as you like. A couple with three children and six grandchildren can give $360,000 in 2027 with no return and no tax.
Two kinds of payment do not count against the limit at all under 26 U.S.C. 2503(e): tuition paid directly to the school, and medical expenses paid directly to the provider. The payment has to go to the institution, not to the student or the patient.
A gift above $20,000 to one person requires a gift tax return, Form 709, but it almost never produces a tax. The excess simply reduces your $15,480,000 lifetime exemption. For nearly every Kentucky family, the return is paperwork, not a bill. Our FAQ on when you pay gift taxes covers the mechanics.
Kentucky has no gift tax. A gift during life is not subject to the inheritance tax unless it was made in contemplation of death. Under KRS 140.020, a gift of a material part of the estate made within three years before death is presumed to be in contemplation of death unless the family can show otherwise.
Should I give money away now to protect it from nursing home costs?
Not without advice, and not because of the gift tax numbers. The federal gift limits and the Medicaid rules are two different systems, and the one that hurts families in Central Kentucky is the second.
When a person applies for Medicaid to pay for nursing home care, the state reviews every transfer made in the five years before the application under 42 U.S.C. 1396p(c). A gift that was perfectly free of federal gift tax, such as $20,000 to each grandchild, may still count as a transfer for less than fair value, and if it does, it creates a period during which Medicaid will not pay for care. Families learn this at the worst time, when a parent is already in a facility and the money is already gone.
Gifting can be part of a long-term care plan, but it has to be done with the five-year clock in mind and usually with an irrevocable trust rather than outright transfers. Our asset protection page explains how that planning works and why it has to start early.
What should I do with this news?
On the federal exemption: if your will or trust was drafted before 2018, have it reviewed. Many older documents divide an estate using a formula tied to the federal exemption amount. When the exemption was $1 million or $2 million, those formulas worked as intended. At $15 million, the same formula can send everything to one trust and nothing to the surviving spouse, or the reverse. The fix is a drafting change, not a new plan, but it has to be made. Our post on reasons to update your estate planning documents lists the other triggers.
On the inheritance tax: if you are leaving property to anyone outside Class A, plan for it now. The estate can be structured so the tax is paid from the estate rather than deducted from the gift, and in some cases life insurance or a different asset mix reduces what is owed.
On gifts: if you want to help children or grandchildren now, consider using the $20,000 exclusion and the direct tuition and medical payments, and talk to us first if there is any chance you or your spouse will need long-term care within five years.
