How did 2002 changes affect the Kansas estate tax, and what is the new succession tax?

Plain-English summary

This notice explains 2002 changes to how Kansas taxes decedents' estates.

Kansas estate tax stays on 1997 federal law. Kansas incorporates federal estate-tax law as it existed on December 31, 1997, so the June 2001 federal changes (raising the exclusion and phasing out the IRC §2011 state death-tax credit) do not automatically apply to Kansas. Under 1997 law, the Kansas filing threshold is $700,000 (2002-2003), $850,000 (2004), $950,000 (2005), and $1,000,000 (2006 and after), and Kansas collects 100% of the federal credit for state death taxes.

New succession tax (2002 SB39). SB39 added a succession tax on the privilege of succeeding to Kansas property by anyone who is not a spouse, sibling, lineal ancestor, or lineal descendant of the decedent — for example nieces, nephews, cousins, and friends. Rates on the value succeeded to: 10% up to $100,000, 12% on amounts over $100,000 up to $200,000, and 15% above $200,000. It is supplemental to the estate tax and applies to deaths on or after June 6, 2002 — and, unlike the estate tax, it can apply regardless of the size of the estate if such a recipient is involved.

Overview of Kansas death taxes by date of death (as the notice sets out):

• Before July 1, 1998: inheritance tax.
• July 1, 1998 - January 2, 2002: estate tax (equal to the 1997-law federal state-death-tax credit); file Form K-706 if a federal 706 was required.
• January 2, 2002 - June 6, 2002: estate tax; $700,000 threshold; Form K-706.
• On/after June 6, 2002: estate tax and succession tax; use Form K-707 (estate $700,000+) or Form K-708 (under $700,000 but with a non-exempt recipient). (The notice states Forms K-707/K-708 were still in development when issued.)

Important later development: the succession tax announced here was retroactively repealed by 2003 House Bill 2005; see Notices 03-06, 03-07 (refunds), and 03-08. The estate (pick-up) tax remained.

What this means for you

If you were settling a Kansas estate in 2002, don't assume the generous post-2001 federal exclusions applied — Kansas stayed at 1997 law with a $700,000 threshold. And for deaths on or after June 6, 2002, watch for the succession tax when property passes to someone outside the immediate family. Because that succession tax was later repealed retroactively (2003 HB2005), succession tax paid for such deaths became refundable — see Notices 03-06 through 03-08.

Common questions

Q: Did the 2001 federal estate-tax cuts lower Kansas estate tax?
A: No. Kansas follows federal law as of December 31, 1997, so its threshold ($700,000 for 2002-2003) and full state-death-tax credit stayed in place.

Q: Who owes the new succession tax?
A: Recipients of Kansas property who are not a spouse, sibling, lineal ancestor, or lineal descendant (e.g., nieces, nephews, cousins, friends), for deaths on or after June 6, 2002.

Q: What are the succession tax rates?
A: 10% up to $100,000, 12% over $100,000 to $200,000, and 15% above $200,000 of the value succeeded to.

Q: Is the succession tax still in effect?
A: No — it was retroactively repealed by 2003 House Bill 2005 (see Notices 03-06 through 03-08); tax paid became refundable.

Citations and references

• 2002 Senate Bill 39 -- succession tax and estate tax changes.
• Internal Revenue Code Sec. 2010, Sec. 2011 -- exclusion and state death-tax credit (1997 federal law).
• Kansas Forms K-706, K-707, K-708 -- estate/succession tax returns.
• Notices 03-06, 03-07, 03-08 -- later retroactive repeal of the succession tax (2003 HB2005).

Subject

Recent Changes in the Taxation of Estates of Decedents Dying On or After January 2, 2002

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 02-01

Original ruling text

Notice
Notice Number: 02-01
Tax Type: Estate Tax
Brief Description: Changes contained in Senate Bill 39 from 2002 Legislative Session.
Keywords:
Approval Date: 06/26/2002

Body:
Office of Policy & Research

                                                 NOTICE 02-01


                                  Recent Changes In The Taxation of Estates
                               Of Decedents Dying On or After January 2, 2002

Recent changes in both federal and Kansas law affect the taxation of estates of decedents dying on or after January 2,
2002. This notice explains those changes and the effect they will have on estates subject to Kansas jurisdiction.
Changes To The Federal Estate Tax

A major feature of the federal tax package adopted in June of 2001 is the phasing down and eventual elimination of
the federal estate tax. Under this law, the federal estate tax will be gradually reduced over the next decade until it is
eliminated in calendar year 2010.

The recent changes in federal law fall into two primary categories. First, the accelerated increase in the Internal
Revenue Code §2010 applicable exclusion amount will have the effect of increasing the federal filing threshold to
$1,000,000 effective January 2, 2002. In accordance with federal law this amount will increase to $1,500,000 in 2004,
$2,000,000 in 2006, and $3,500,000 in 2007.

Second, under the new federal law the federal credit for state death taxes found in Internal Revenue Code §2011 is
phased out. In accordance with federal law, for deaths occurring in 2002 the amount of the credit is decreased by 25%,
for 2003 by 50%, for 2004 by 75%. For deaths occurring in 2005 the credit is eliminated and replaced with a
deduction.

Many practitioners mistakenly believe the Kansas estate tax law is in total conformity with federal law and
that the recent federal law changes will automatically flow through to Kansas. This is not the case. By statute,
Kansas has incorporated by reference federal law as it existed on December 31, 1997. Therefore, under current
law, the Kansas estate tax will not be affected by the recent changes to federal law.

The 1997 federal law Kansas has incorporated by reference does include a provision that increases the filing threshold
over time. However, the increase occurs at a slower pace and stops at a lower level. The state filing threshold is
$700,000 in 2002 and 2003, $850,000 in 2004, $950,000 in 2005, and $1,000,000 in 2006 or thereafter.

The 1997 federal law Kansas has incorporated by reference does not include a provision that provides for a phase-out
of the credit for state death taxes. Instead, 100% of the amount of the credit is to be paid.
Succession Tax In Addition To The Kansas Estate Tax

A feature of 2002 SB39, recently passed by the Kansas Legislature, is the imposition of a succession tax. The
succession tax is imposed “on the privilege of succeeding to the ownership of any property, corporeal or incorporeal,
and any interest therein within the jurisdiction of Kansas by any person who is not a spouse, sibling, lineal ancestor or
lineal descendant of the decedent.” Included among the persons subject to the succession tax are nieces and nephews,
cousins, and friends of the decedent.

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The succession tax is charged upon the value of the property succeeded to by the recipient. The tax is charged at the
rate of 10% on any amount up to $100,000; at the rate of 12% on any amount in excess of $100,000 up to $200,000;
and at the rate of 15% on any amount in excess of $200,000.

The succession tax is supplemental to the Kansas estate tax. It is effective for deaths occurring on or after June 6,
2002.
Overview of Kansas Death Taxes

Deaths Occurring Prior To July 1, 1998 – Inheritance Tax

Estates of persons who died before July 1, 1998 are subject to an inheritance tax. Additional information about the
inheritance tax is available from the Department of Revenue.

Deaths Occurring On Or After July 1, 1998 And Prior To January 2, 2002 – Estate Tax

Estates of persons who died on or after July 1, 1998 and prior to January 2, 2002 are subject to an estate tax. It is a tax
on the value of the decedent’s estate, and is equal to the federal credit for state death taxes computed on the basis of
1997 federal law.

Generally, no Kansas tax is due unless the gross value of the estate exceeds the federal estate tax filing threshold for
the year in which the death occurred. In the case of estates of decedents dying during 1998, the federal filing threshold
was $625,000. In the case of estates of decedents dying during 1999, the federal filing threshold was $650,000. In the
case of estates of decedents dying during 2000 and 2001, the federal filing threshold was $675,000.

Death Occurring On Or After January 2, 2002 And Prior To June 6, 2002 – Estate Tax

Estates of persons who died on or after January 2, 2002 and prior to June 6, 2002 are subject to an estate tax. It is a tax
on the value of the decedent’s estate, and is equal to the federal credit for state death taxes computed on the basis of
1997 federal law. The Kansas filing threshold is $700,000 and the tax is equal to 100% of the amount of the federal
credit for state death taxes. Generally, no Kansas tax is due unless the gross value of the estate exceeds $700,000.

Deaths Occurring On Or After June 6, 2002 – Estate Tax And Succession Tax

Estates of persons who died on or after June 6, 2002 are subject to an estate tax and to a succession tax.

Estates of persons who died on or after June 6, 2002 are subject to an estate tax. It is tax on the value of the decedent’s
estate, and is equal to the federal credit for state death taxes computed on the basis of 1997 federal law. For deaths
occurring during 2002 and 2003 the Kansas threshold for the imposition of tax is $700,000. [The threshold is
$850,000 in 2004, $950,000 in 2005, and $1,000,000 in 2006 or thereafter.] The tax is equal to 100% of the amount of
the federal credit for state death taxes.

In addition to the estate tax, estates of persons who died on or after June 6, 2002 are subject to a succession tax. This
tax is imposed on the privilege of succeeding to the ownership of any property, corporeal or incorporeal, and any
interest therein within the jurisdiction of Kansas by any person who is not a spouse, sibling, lineal ancestor or lineal
descendant of the decedent. Generally, any estate that includes property passing to any person who is not a spouse,
sibling, lineal ancestor or lineal descendant of the decedent will be subject to the succession tax, regardless of the size
of the estate.
Kansas Returns And Filing Requirements

For deaths occurring prior to July 1, 1998 an inheritance tax return should be filed. Additional information about
the inheritance tax is available from the Department of Revenue.

For deaths occurring on or after July 1, 1998 and prior to January 2, 2002 an estate required to file a federal
Form 706 must file a Kansas estate tax return. Use form K-706. A copy of the federal Form 706 filed for the estate
must be attached. If the estate did not file a federal Form 706, the estate is not required to file a Kansas estate tax
return.

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For deaths occurring on or after January 2, 2002 and prior to June 6, 2002 an estate with a gross value of
$700,000 or more must file a Kansas estate tax return. Use Form K-706. If the estate filed a federal Form 706, a copy
must be attached. If the estate was not required to file a federal Form 706, a pro forma federal Form 706 must be
completed and attached. Use revision of Form 706 dated July 1998.

For deaths occurring on or after June 6, 2002 an estate with a gross value of $700,000 or more must file an estate
and succession tax return. [For deaths occurring during 2002 and 2003 the Kansas threshold for the imposition of
estate tax is $700,000. The threshold is $850,000 in 2004, $950,000 in 2005, and $1,000,000 in 2006 or thereafter.] In
addition, regardless of the gross value of the estate, any estate that includes property passing to any person who is not
a spouse, sibling, lineal ancestor or lineal descendant of the decedent must file an estate and succession tax return.

If the estate has a gross value of $700,000 or more use Form K-707. If the estate filed a federal Form 706, a copy
must be attached. If the estate was not required to file a federal Form 706, a pro forma federal Form 706 must be
completed and attached. Use revision of Form 706 dated July 1998.

If the estate has a gross value of less than $700,000 but includes property passing to any person who is not a spouse,
sibling, lineal ancestor or lineal descendant of the decedent, use Form K-708. Neither a federal Form 706 nor a pro
forma federal Form 706 need be submitted.

Please note that as of the date of this Notice, neither Form K-707 nor Form K-708 is available. The Department of
Revenue is in the process of developing these forms and will have them available in the near future. If you are facing
a situation that requires you to file a Kansas estate and succession tax return immediately, please contact our Estate
Tax Unit at the address or number listed below for special instructions.

To obtain additional copies of this or any other notice call the Kansas Department of Revenue’s voice mail forms
request line at (785) 296-4937 or download them from our web site: www.ksrevenue.org. If you have any questions
about this notice or Kansas estate tax, please contact our Estate Tax Unit.
Kansas Estate Tax
Kansas Department of Revenue
915 SW Harrison St.
Topeka, KS 66625-2222
In Topeka call: 368-8222
Outside Topeka call toll free: 1-877-526-7738
Fax: (785) 296-4993

Date Composed: 06/26/2002 Date Modified: 07/01/2002

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