Nebraska is one of only five states that imposes an inheritance tax against beneficiaries. If someone dies in Nebraska, Kentucky, Maryland, New Jersey, or Pennsylvania – or dies owning property in one of those states – inheritance tax will be assessed. In Nebraska, tax is assessed against beneficiaries at different rates, according to the beneficiary’s relationship to the decedent.
How Nebraska Inheritance Tax Works
| Class | Beneficiary Type | Exemption and Tax Rate |
| N/A | Spouse | N/A |
| I | Children, grandchildren, parents, grandparents, siblings | 1% in excess of $100,000 |
| II | Uncles, aunts, nieces, nephews | 11% in excess of $40,000 |
| III | All other beneficiaries (e.g., friends, farm tenants, employees, etc.) | 15% in excess of $25,000 |
Nebraska law favors keeping assets with direct lineal descendants or ancestors. However, this is not always possible, and families come in many forms. In recognition of this fact, Nebraska law allows a beneficiary to argue that a decedent stood “in loco parentis” to them.
What Does In Loco Parentis Mean?
“In loco parentis” is a Latin term that refers to a decedent who acted in the role of a parent to a child with a beneficiary. The decedent must have held this role for at least ten years prior to their death. The parent-child relationship may be proven up via affidavit filed with the inheritance tax pleadings. If the court approves, the beneficiary will be treated as a Class I beneficiary for inheritance tax purposes and taxed under the significantly more preferential rate.
In re Estate of Ackerman: Case Study
The factors the court may consider are summarized in the 1996 Nebraska Supreme Court case, In re Estate of Ackerman. These include: (1) reception of the child into the home and treatment of the child as a member of the family; (2) assumption of the responsibility for support of the child beyond occasional gifts or financial aid; (3) exercise of parental authority or discipline; (4) relationship by blood or marriage; (5) providing advice and guidance to the child; (6) sharing time and affection with the child; and (7) written documentation demonstrating intent to act as a parent. While this list is not exhaustive, nor will every factor be present in each case, it provides a clear guidepost to the court in making its determination as to whether a decedent stood in loco parentis.
For example, a farmer who never married or had children wants to make a bequest of land to his nephew in his Will. The nephew will pay 10% more in tax than he would if he was a direct lineal descendant, which could require liquidation of farm ground to pay. To prove that a parent-child relationship existed, the farmer’s attorney can discuss the factors provided in Ackerman.
Proving an In Loco Parentis Relationship in Court
Some factors are given more weight than others, and an experienced estate planning attorney can provide guidance as to the likelihood of the county court to accept the in loco parentis claim. Maybe the nephew’s biological father wasn’t involved growing up, and the farmer set expectations regarding the nephew’s behavior and education. Perhaps the farmer helped his nephew buy his first car, or first piece of farmland. The nephew could have lived with the farmer periodically, or the farmer took his nephew on family vacations. Taken together, these factors may be enough to evidence a parent-child relationship.
When it appears that a parent-child relationship exists, the attorney can draft a Will or trust acknowledging that the client stood in loco parentis to the beneficiary. The Will or trust can be used to satisfy the final factor — written documentation of intent to act as a parent — as well.
In our example, once the farmer dies, the nephew has the burden of proving that the farmer died standing in loco parentis to him. He will execute a sworn affidavit summarizing his relationship with the farmer in light of the Ackerman factors. This affidavit will be filed with the inheritance tax pleadings. If the court accepts the claim, then the nephew can pay the associated tax. Otherwise, he may need to appear for a hearing and provide in-person testimony about the relationship.
How Much Does In Loco Parentis Matter in Nebraska?
There is no guarantee that a court will accept a claim of in loco parentis. However, it should be discussed any time the majority of an estate will be given to someone other than a spouse or Class I beneficiary, due to the potential savings. Savvy estate planning can save tens of thousands of dollars in taxes. For instance, if the nephew in our example is inheriting all of a $1,000,000 estate, he would be required to pay $105,600 in taxes. If the court finds the decedent was standing in loco parentis to him, he’d pay just $9,000.
At Goosmann Law Firm, our estate planning attorneys have the experience to advise you on the mechanics, risks, and benefits of any plan. If you’re ready to create a new plan — or update an existing one — we are ready to help.
This blog is for informational purposes only and does not constitute legal advice. You should not act or rely on any information in this blog without first consulting a qualified attorney regarding your specific situation.