Kentucky adopted the Uniform Trust Code in 2014, bringing a modern and comprehensive framework to a state that had previously relied on older, less organized trust statutes and common law. The Kentucky Trust Code is codified at KRS Chapter 386B. One important detail that sets Kentucky apart from many states: Kentucky has an inheritance tax that can affect trust beneficiaries, even though it does not have a separate estate tax.
This guide applies to both revocable and irrevocable trusts in Kentucky.
Where Kentucky trust law lives
Kentucky's trust statutes are found in KRS Chapter 386B. The code follows the standard UTC structure, covering trust creation, modification, termination, trustee duties, beneficiary rights, and remedies. The adoption replaced an older legal framework and brought Kentucky into alignment with neighboring UTC states like Ohio, Tennessee, and West Virginia.
Accounting and notice requirements
Kentucky follows the standard UTC notice framework. Trustees must notify qualified beneficiaries within 60 days of accepting trusteeship of an irrevocable trust. This notice must include the trust's existence, the trustee's contact information, and the beneficiary's right to request a copy of the trust instrument and annual accountings.
Annual accounting to qualified beneficiaries is required under the default rules. While the trust is revocable and the trust creator is alive and competent, the trustee's duties run primarily to the trust creator.
Kentucky's statute of limitations for breach of trust claims follows the UTC's standard framework, with claims barred after a specified period following adequate disclosure by the trustee.
Trustee duties
Kentucky trustees must administer the trust in good faith, in accordance with its terms and purposes, and in the interests of the beneficiaries. All standard UTC duties apply: loyalty, impartiality, prudent administration, and prudent investing.
One notable change from the UTC adoption: the prudent investor rule now applies to all trustees in Kentucky. Before the UTC took effect, the prudent investor standard only applied to corporate trustees. Family members and other individuals serving as trustees were held to a different (and less clearly defined) standard. Under the UTC, every trustee must invest "as a prudent investor would," regardless of whether they are a professional or a family member.
Compensation follows the trust instrument first. The court can adjust compensation if the trustee's duties have changed substantially or if the specified amount is unreasonably high or low.
What makes Kentucky different
Inheritance tax (not estate tax). Kentucky does not have a state estate tax, but it does have an inheritance tax. This is an important distinction. An estate tax is paid by the estate before assets are distributed. An inheritance tax is paid by the beneficiaries who receive the assets. Kentucky classifies beneficiaries into three classes. Class A (spouses, parents, children, grandchildren, and siblings) is fully exempt. Class B (nieces, nephews, children-in-law, aunts, uncles, and great-grandchildren) receives a $1,000 exemption with rates from 4% to 16%. Class C (all others) receives a $500 exemption with rates from 6% to 16%. If your trust distributes assets to anyone outside of close family, the inheritance tax is a real consideration.
Revocable trust assets subject to creditor claims. Under the Kentucky UTC, assets held in a revocable trust can be subject to the claims of the trust creator's creditors after death. This was a change from prior Kentucky law and is an important consideration when evaluating whether a revocable trust provides asset protection.
Concurrent court jurisdiction. Trust matters in Kentucky can be brought in either District Court or Circuit Court, unless a specific statute gives one court exclusive jurisdiction. This was clarified by the UTC adoption and resolved prior confusion about which court had authority over trust disputes.
Small trust termination. The trustee of a trust containing property worth less than $100,000 can terminate the trust if the cost of continued administration would be unreasonable, after providing notice to qualified beneficiaries. This is a practical tool for families with smaller trusts.
Pet trusts. Kentucky's UTC adoption made the state the 47th to authorize trusts for the care of animals. These trusts are legally enforceable and can continue for the lifetime of the animal.
TrustHelm tip: Kentucky's inheritance tax can catch families off guard, especially when trust distributions go to non-immediate family members. TrustHelm's beneficiary tracking and distribution records can help you stay organized and anticipate potential tax obligations before distributions are made.
The most common Kentucky trust mistakes
Not funding the trust. The most common trust mistake: assets that are not properly transferred into the trust remain subject to probate. Real estate, bank accounts, and investment accounts all need to be retitled in the trust's name.
Overlooking the inheritance tax. Many families assume that because Kentucky has no estate tax, there is no state-level tax on inherited assets. The inheritance tax applies to beneficiaries who are not close family members, and the rates can reach 16%. Proper planning can minimize or avoid this tax.
Family trustees not understanding the prudent investor standard. Before the UTC, non-professional trustees in Kentucky operated under a less rigorous standard. Now all trustees must follow the prudent investor rule. Family members serving as trustee should understand their investment obligations.
Not updating trusts created before 2014. The UTC applies to all trusts, including those created before the law took effect. However, trusts drafted under the old framework may include provisions that do not work well with the current code. Reviewing older trusts with an attorney can prevent unexpected issues.
When to talk to an attorney
You should consult a Kentucky trust attorney if you need to understand how the inheritance tax affects your trust distributions, if you are a family member serving as trustee and want to understand your investment obligations, if you have a trust created before 2014 that may need updating, or if you need to modify or terminate a trust.
If you need help finding a qualified estate planning attorney in your area, visit TrustHelm's Find an Attorney tool.
This guide is for educational purposes only and does not constitute legal advice. Consult a qualified attorney for decisions about your trust.