Five Pennsylvania Inheritance Tax Tips

Are you an Executor or Administrator of an estate in Pennsylvania, or are you worried about your estate being handled properly when you pass? If you answered yes to either, you must be concerned about Pennsylvania Inheritance Taxes.

Pennsylvania imposes an inheritance tax (some call it a death tax, but it shouldn’t be confused with an estate tax) on most of an estate upon one’s death. Here are five tips to deal with the inheritance tax:

  1. Know the rates: Transfers to spouse and charities (0%), transfers to children and grandkids (4.5%), transfers to siblings (12%) and all others (15%). Knowing the rates may change how you devise your estate plan.
  2. Pay early: Executors, you can get a 5% discount of the tax due by paying the tax within 3 months of the date of death. An inheritance tax return is due 9 months from the date of death.
  3. Joint assets: Joint assets are still inheritance taxable — for instance, if you own a $100,000 bank account with your daughter and you die, your daughter will inherit the entire account, but still have to pay inheritance tax on half of the account. Therefore, she would pay 4.5% on $50,000.
  4. Computing the tax: You must use date of death values on all assets. For real estate, typically the sale price is what is used on the tax return. You can take deductions, but they must meet certain criteria and must be backup by evidence. Typical deductions include funeral expenses, Executor compensation, real estate expenses, etc. 
  5. Get it done professionally: Making a mistake on return can cause headaches for the Executor or Administrator. Although it is possible to complete the return on your own, it’s best to have a professional complete the return (an attorney or CPA). At our office, we regularly handle the preparation of inheritance tax returns.
  6. BONUS TIP: Most life insurance policies are EXEMPT from PA inheritance tax. Want more information about this? Call our office now at (215) 706-0200 for your immediate complimentary consultation.