LINCOLN - Death would become a little less costly in Nebraska under a compromise measure given first-round approval in the Legislature on Tuesday.

As advanced, the bill (LB310) would help people inheriting property in the state by increasing the amount exempt from inheritance taxes, reducing the tax rates, and eliminating the tax on heirs age 21 or younger. The measure cleared first-round consideration on a 41-4 vote.

Senator Rob Clements of Elmwood introduced LB310 which seeks to eliminate or drastically reduce the tax. The original version of the bill would cut the tax in half.

Nebraska's tax has been in place since 1901 and is one of only six states that levy inheritance tax. Clements argued this puts us at a significant competitive disadvantage.

"People are finding out that Nebraska is a bad place to die," he said, adding that, as a community banker, he said he has seen cases where heirs have to sell their inheritance to pay the taxes on it. "I think we can do better than to treat families this way."

Opponents, however, argue that discontinuing this tax would force county governments to turn to their other main source of revenue to make up the difference - property taxes.

"If I could get rid of the inheritance tax, I would," said Sen. Curt Friesen of Henderson. "But this is a tax shift. This is going to raise property taxes."

With counties receiving money from the federal pandemic relief legislation, Clements argued this is a good time to reduce the tax. Opponents point out, however, that these funds are a one-time influx of money and cannot adequately replace the inheritance taxes of the future.

Currently, spouses are exempt from inheritance taxes. Immediate family, children, parents, grandparents, and siblings, pay a 1% rate on inherited property, with a $40,000 exemption. LB310 would raise the exemption for immediate family to $100,000 but leave the rate unchanged.

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