Pennsylvania Inheritance Tax Basics
When you die in the Commonwealth of Pennsylvania, any property or assets that you leave to other people is subject to the Pennsylvania Inheritance Tax. This is in addition to possible federal estate taxes. Currently, in 2013, the federal estate tax exemption is over $5 million per person, so most people are not affected by the federal estate tax.
Typically, but not always, the Executor or Administrator of the estate pays the inheritance tax on behalf of all beneficiaries of the estate before any of the property is distributed to beneficiaries.
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Pennsylvania mandates that inheritance tax be paid nine months after the decedent dies.
The estate can receive a discount if the Executor pays within 3 months.
Extensions can be granted, but interest starts to run after 9 months.
The PA Inheritance Tax rates for 2013 and beyond (at least as of now) are:
- 0%: Legally married spouses (No common law marriage), Charities
- 4.5%: Children, Grandchildren (Direct Descendants)
- 12%: Siblings
- 15%: All others (Includes domestic partners, friends, etc.)
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Most property is subject to inheritance tax.
Jointly owned property is taxed at the share the person owned (i.e., if a person owned 50% of a property, that 50% share would be taxable).
One way to avoid inheritance tax in PA is to establish an irrevocable trust, or simply gift assets (unconditional giving, no strings attached) to someone. You must outlive them at least one year in order for the gift or trust to be complete so that no inheritance tax is due on that property. Be careful what you gift to someone and do not make gifts without the advice of an attorney and financial professional. If you gift someone a house, and you still want to live in it while he or she owns it, you could be making a risky move, especially if that person gets in trouble.
Also, life insurance is typically inheritance tax free. Life insurance is a great wealth transfer tool, and our firm regularly helps individuals and families with their life insurance needs.
We would advise you not to do any inheritance tax planning without the assistance of a qualified estate planning attorney. Please call our office today at 215-706-0200 or email us to schedule a complimentary appointment.