Wednesday, August 11, 2010

Paying PA Inheritance Tax is Not Optional

No one likes taxes, especially “death taxes” – many people fundamentally disagree with a system that taxes a dead person’s belongings that pass on to their loved ones. However, if you are a resident of Pennsylvania, and due to your death you pass property onto others, your estate and/or your heirs are responsible for paying Pennsylvania Inheritance Tax.

The vast majority of property passed on is subject to PA Inheritance Tax. Most property owned by the decedent is taxable at rates that have been pretty steady. The Pennsylvania inheritance tax rates in 2010 are:

• 0% for spouses,
• 4.5% to kids, grandkids and parents,
• 12% to siblings and
• 15% to all others. 

There is no common law marriage in PA or domestic partnership laws. Therefore, property passing from one person to another in a type of relationship listed right above is subject to the 15% rate.

Inheritance taxes are due 9 months after the person dies. Paying within 3 months rewards the taxpayer with a 5% discount off the total tax bill.

Quite a few estates, on paper, are plush with assets. However, many estates have a high majority of assets that aren’t liquid – think about retirement accounts, real property, etc. That makes paying inheritance taxes difficult at times. I recommend that you plan in advance with a qualified estate planning attorney. Our firm can assist you in making sure your estate is setup properly to ensure your loved ones can pay the inheritance tax without dipping into their own assets.

Inheritance taxes must be paid. You cannot simply avoid paying the tax bill if you are an executor, personal representative, or someone receiving an inheritance. The state may very well eventually catch up with you if you fail to pay the taxes. If you are caught, you will be faced with severe penalties and interest.

No one likes to pay taxes, but paying Pennsylvania inheritance taxes are not optional. We recommend that an executor or personal representative of an estate hire a qualified estate planning/estate administration attorney to assist in all matters relating to the estate, including the filing of the PA inheritance tax. An executor does not need to hire an attorney, but it is highly recommended, even for estates that seem fairly basic.

If you have any questions about estate administration or inheritance tax issues, please contact our firm today at (215) 706-0200. We offer complementary initial consultations.