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Pennsylvania Inheritance Tax

Thursday, April 11, 2013

Pennsylvania Inheritance Tax Basics

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.

ARE YOU AN EXECUTOR AND NEED ASSISTANCE WITH INHERITANCE TAXES? CONTACT US TODAY.

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.)

MAKE SURE YOU FILE YOUR INHERITANCE TAXES CORRECTLY THE FIRST TIME. CONTACT OUR FIRM TODAY FOR ASSISTANCE.

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.


Thursday, July 26, 2012

Five Things You Can Do NOW to Improve Your Estate Plan

Estate planning is about as exciting as going to the dentist. But just like the upkeep of your teeth to prevent cavities, root canals, etc., keeping up your estate plan can help avoid bigger problems and conflicts later down the road.

Everyone should have a plan, no matter how much or little wealth you have. Furthermore, your life and circumstances will continue to change, and so should your plan. Get a check-up at least every few years!

 

Here are the five things you can do NOW to enhance your current plan:

 

1. Organize - Your plan won't be helpful to you or your family if no one can find it. Make sure you keep the originals in a fire-proof safe at home, and leave instructions for your Executor and Agent to be Power of Attorney.

 

2. Communicate - Surprises when a plan is needed is never fun. Talk to your Executor and Power of Attorney in advance
 

3. Supplement - Funeral instructions, last wishes, health care concerns - these are all things with which you can supplement your plan.
 

4. Consider an irrevocable burial reserve and make all of your last arrangements now - it will be one less step for your family
 

5. Electronic data - make a plan for your electronic data. Think of all of the "stuff" we have on our computer today. Photos, sensitive financial information, etc. What's your plan to ensure that your electronic data is handled the way you want it to be handled?

 

 


Tuesday, June 5, 2012

Jeremy Wechsler Releases New Book on Estate Planning

Looking for a great resource on estate and retirement planning? Jeremy Wechsler, your Estate & Elder Law Attorney, recently co-authored a new book with Peter R. Wechsler, his father and Your Retirement Quarterback. The book is an easy read but full of valuable information on estate and retirement planning.

Learn more about the book here: https://solvingtheretirementpuzzle.com


Monday, January 30, 2012

Gifting the House For $1: Good Idea or Not?

 

Many people ask us if it is a good idea to give their home to their children. While it is relatively easy to do, giving away your house can have major tax consequences, among other negative results.
 
GIFT TAX ISSUES: When you give anyone property valued at more than $13,000 in any one year, you have to file a gift tax form.  Also, under current law you can gift a total of $5.12 million over your lifetime without incurring a gift tax. If your residence is worth less than $5.12 million, you likely won't have to pay any gift taxes, but you will still have to file a gift tax form. Congress may change the gift tax exemption, which is now scheduled to revert to $1 million in 2013 unless Congress acts.
 
CAPITAL GAINS TAX ISSUES: While you may not have to pay gift taxes on the gift, if your children sell the house right away, they may be facing steep taxes. The reason is that when you give away your property, the tax basis (or the original cost) of the property for the giver becomes the tax basis for the recipient. For example, suppose you bought the house years ago for $150,000 and it is now worth $350,000. If you give your house to your children, the tax basis will be $150,000. If the children sell the house, they will have to pay capital gains taxes on the difference between $150,000 and the selling price. The only way for your children to avoid the taxes is for them to live in the house for at least two years before selling it. In that case, they can exclude up to $250,000 ($500,000 for a couple) of their capital gains from taxes.
 
Inherited property does not face the same taxes as gifted property. If the children were to inherit the property, the property's tax basis would be "stepped up," which means the basis would be the current value of the property. However, the home will remain in your estate, which may have estate tax consequences.
 
PA INHERITANCE TAX ISSUES: In Pennsylvania, there is no gift tax. However, to avoid PA Inheritance Taxes (the rate is 4.5% for assets passed to children or grandchildren), you must live at least one year from the time the gift was made. Often times, 4.5% of inheritance tax is worth paying rather than gifting the house in this manner, due to the risks involved.
 
ASSET PROTECTION ISSUES: By transferring your house to your children, you are making all of their future financial and family problems YOUR problems. That means the house could end up being taken away due to creditor problems, bankruptcy, litigation, or divorce. Would you want your son-in-law to get part of your house while you're still living?
 
MEDICAID/LONG-TERM CARE ISSUES: Beyond the tax consequences, gifting a house to children can affect your eligibility for Medicaid coverage of long-term care.  There are other options for giving your house to your children, including putting it in a trust or selling it to them. Before you give away your home, consult with an elder law firm such as our law firm, where we can advise you on the best method for passing on your home.
 
CONCLUSION: "Gifting the house for $1" is a phrase that's tossed around quite a bit, and several families go ahead with this planning. As you can see, casual planning like this is fraught with potential landmines. Be careful. There are options out there to transfer the house properly. Speak with an estate planning or elder law attorney about this type of planning.

Monday, December 12, 2011

Estate Tax Update / 4 Common Estate Planning Questions

 

Q&A: Four Commonly Asked Estate Planning Questions

 

1. Most of my assets are jointly titled, or they are qualified accounts with beneficiaries named. So do I still need a Will? Having a Will is still a necessity, but it can be more or less important to you depending on your estate. A Will is always needed to make sure an Executor is named, and take care of assets that are not titled jointly or with beneficiaries. It always makes sense to have a Will no matter what your circumstances.

 

2. How can I plan for avoiding Pennsylvania Inheritance Taxes? Most assets are subject to PA Inheritance Tax. However, one asset that's typically not subject to PA Inheritance Tax is life insurance. Life insurance also provides liquidity upon death to pay taxes, fees, etc. The inheritance tax rates are 0% between spouses, and 4.5% to kids and grandkids.

 

3. I have two kids, can't I just name both of them as Co-Executors? That may seem harmless, but could cause big problems for your estate later on. Putting two or more people in charge of one task is a recipe for conflict. Would it make sense to have two CEO's in charge of a company? Both children can be treated equally under the Will while one serves as Executor. Bottom line: Choose one primary, and two backup Executors.

 

4. What is the "Five Year Lookback Period"? When a client is in a nursing home or will be heading there and wants to qualify for Medicaid, federal law requires that any gifts made within the five previous years be accounted for. A gift made within five years could cause a penalty (based on a formula) that will prevent one from receiving benefits for a certain period of time. Qualifying for Medicaid is become increasingly complicated, and the best advice is to plan early while you're still healthy.

 

Have more questions? Email us at info@jawatlaw.com.

Latest News on the Federal Estate Tax

What's happening with the federal estate tax? Recently, a Democratic Congressman proposed a bill in the House of Representatives to lower the federal estate tax to a $1 Million exemption per person. Currently, the exemption is $5 Million. If the bill passed, many more people would be hit by the tax. 

 

The bill has no chance of passing, and the estate tax exemption will remain at approximately $5 Million for 2012. However, we will be watching 2013 closely, when the current law expires. Congress and the President will need to act at some point in 2012 to avoid the estate tax going back to $1 Million in 2013. Who knows what Congress will do... or when they will do it. We'll keep a watch and keep you updated.

 

Article Link: McDermott Tries To Rewrite Estate Tax

 


Monday, November 21, 2011

Executors; Estate & Gift Tax Update

 

THE ROLE OF THE EXECUTOR... The Executor is the CEO of an estate. The individual or institution filling that role is, in essence, the owner of your estate when you pass on, and has a “fiduciary duty” to do what is in the best interests of your beneficiaries, the people you leave your stuff to.

Executors and trustees (if you have a living trust instead of a Will) need to be careful and diligent about their work, and consider hiring outside assistance (attorney, CPA, etc.) as needed to ensure accountings are filed correctly, and inheritance tax and estate tax returns are prepared properly.

Transparency is key when you are an Executor. For instance, sharing a full accounting and a copy of the Will with the beneficiaries goes a long way.

Also, if an estate has creditors, you must be diligent in ensuring they receive proper notice. If an Executor fails to give proper notice to creditors and the Executor distributes the estate, there is a possibility that the creditor could later appear, make a demand, and hold the Executor personally liable.

Being Executor is not impossible to handle without a lot of outside help, especially for simple estates. But where there are complexities, beneficiaries with some conflict, creditors, etc., it makes good sense for your estate for the Executor to consider outside assistance. Remember, the Executor has a legal obligation and a fiduciary obligation.

 

FEDERAL TRANSFER TAX UPDATE... The so-called “super-committee” had apparently floated the ideas of changing the gift tax and federal estate tax before the year is out. Fun rumor, but not going to happen, as we have heard over the weekend that Congress is... surprise, surprise… deadlocked!

The gift tax exclusion stays basically the same in 2012. You can make $13,000 annual gifts to as many people as you want, no tax due and no filing needed. Over $13k, you have a $5.12 million lifetime gifting exemption. Anything above $13k, you need to file a Gift Tax Return (IRS Form 709). Any gift over $5.12 Million in 2012 is taxable at a 35% rate. This will potentially change again in 2013. Now is the time to make large gifts.

The federal estate tax remains at a $5.12 Million exemption in 2012, affecting very few people. Anything above $5.12 Million, or $10.24 Million for a married couple, is taxed at 35%. Again, 2013 could see major changes in this scheme.

The Pennsylvania Inheritance Tax rates will remain the same in 2012.

Of course, we’ll keep you updated on any changes.

Have a Happy Thanksgiving! Best wishes to you and your family.


Monday, October 10, 2011

7 Estate Planning Questions

 

Top 7 Estate Planning Questions That Clients Ask

1. What if I don’t have a Power of Attorney, what happens?

You need to make sure you have a Power of Attorney, no matter what age you are. If something happens to you and you can’t make decisions for yourself, you need to make sure someone is appointed to handle your affairs. If you don’t, a guardian may need to be appointed for you. That means going through the courts, something that no one wants to be bothered with.

2. Is probate a big deal in Pennsylvania? Do I need a living trust?

Probate is not the scary process that it used to be, at least in Pennsylvania. Most people in Pennsylvania opt to have a will over a living trust because probate is rather straightforward. Sometimes, an attorney may need to be retained to help with probate affairs, but many times, a family can do it themselves.

3. Why do I need a will if most of my assets are joint or have beneficiaries?

Regardless of if your assets are jointly titled and have beneficiary designations, it still makes a lot of sense to have a will.

First, you may acquire new assets or move assets around during the course of your life. You may forget to re-title beneficiaries, or you may not title the asset jointly.

Second, there are bound to be assets that WILL pass through the will! It always happens. Plus, even if that doesn’t happen, a will is important for other reasons, such as making sure you have an Executor appointed.

Finally, if you are married, a will may not be as important upon the first-to-die, but upon the second-to-die, a will becomes essential because it’s likely that many of those joint assets are no longer jointly held, and will pass through the will.

4. Where do I store my documents, and should an attorney keep a copy?

We generally recommend you purchase a fire-proof records safe for your home and store your original estate planning documents there. They will be safe, but more accessible than a bank safe deposit box. As your estate planning law firm, we keep a copy of your documents on our secure LegalVault service, which also provides you and your health care providers access to your documents.

5. Can I write my plan myself or with a LegalZoom type of service?

Of course you can, but it’s probably not a good idea. Would you skip the doctor’s office and diagnose yourself if you’re feeling sick? Estate planning is best done with an attorney who understands how all of the pieces of the puzzle fit together. Estate planning includes wills, powers of attorneys, and trusts, but it also includes strategies while you’re alive, and strategies for the next generation. Even a “simple” plan is best done with an attorney, because as of our experiences show, even the simple plans require customizations.

6. How often should I update my plan?

Check your documents at least every three years to make sure they still seem current. We recommend that you update the plan when you see a need for a change, and update your powers of attorney every five years.

7. What are the taxes at death and how do I avoid them?

There are both federal estate and state inheritance taxes. Most people today don’t worry about federal estate taxes today, because only folks with more than $5 Million of assets are affected. 

Pennsylvania has a state inheritance tax, and any asset transferred upon death in Pennsylvania is possibly subject to inheritance tax, with very few exceptions. The tax rates are relatively small (4.5% to kids and grandkids), so most of the time, planning to avoid PA inheritance taxes is not worth it. However, every case is different and we can discuss estate and inheritance tax planning strategies with you that may make sense.


Monday, March 28, 2011

10 Things That Could Go Wrong Without A Plan

 

Without an estate plan, many things could go wrong. As always, what could go wrong depends on your situation. Here are ten quick issues that could arise if you do not have an estate plan:

  1. If you have kids but have not appointed a guardian, and something happens to you (and your spouse), someone will have to petition a court for guardianship, a burdensome process.
     
  2. You have no control over how your assets are divided if you don't have a will.
     
  3. If you become sick/incompetent, and an end-of-life health care decision needs to be made for you, your family may end up in court if there is disagreement and discord.
     
  4. The state will determine who your Executor will be. What if more than one person wants the role? What if no one wants the role? Either way, this could lead to major conflicts in the family.
     
  5. Particularly for a second marriage, if you don't have an updated and carefully drafted durable financial power of attorney, your spouse could cut out your children from the first marriage, particularly when it comes to retirement accounts.
     
  6. Your family could inadvertently pay more inheritance taxes.
     
  7. For those that are not married, but are either engaged or in a long term relationship and want that significant other to be in control of any decisions for incapacity, etc., you MUST have an estate plan with powers of attorney and wills.
     
  8. For any family, there is the possibility of a family conflict over your personal belongings if they aren't assigned to someone in your plan, or while you're still living.
     
  9. Without a plan, a trust is not established for minors, dependents, and special needs beneficiaries. Only a custodial account can be created under the UTMA, and the functionality and use of this account is severely limited.
     
  10. Lastly, a plan that is not updated might be just as bad, if not worse, if a lot has changed between now and the time you put the plan together.

If you need assistance with your estate plan, please contact our office today at (215) 706-0200.


Monday, November 22, 2010

Pennsylvania Inheritance Tax 101

 

When you die in Pennsylvania, any property or assets that you leave to other people is subject to an “Inheritance Tax.” This is in addition to possible federal estate taxes (more on this in the coming weeks).

Typically, but not always, the Executor of the estate pays the inheritance tax on behalf of all beneficiaries of the estate before any of the property is distributed to beneficiaries.

Pennsylvania mandates that inheritance tax be paid 9 months after the decedent dies. You can get a discount if you pay within 3 months.

The PA Inheritance Tax rates for 2010, 2011 and beyond (at least as of now) are:

  • 0% --  Legally married spouses
  • 4.5% -- Children, Grandchildren
  • 12% -- Siblings
  • 15% -- All others

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. 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.

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 to schedule a complimentary appointment. Have a wonderful Thanksgiving holiday!


Tuesday, September 28, 2010

What is Probate and How Does it Work in Pennsylvania?

 

Are you confused about what probate is, or what it entails?

Probate is a process that occurs upon your passing, but it is different in every state.

The person in charge of your estate, your executor, is responsible for formally proving your will is valid before a court or administrative office. In Pennsylvania, this is relatively easy. Usually, a court is not involved. Instead, your executor goes to the “Register of Wills” office in your respective county of residence, hands the administrator the original will, and the executor, after an oath and proof of identity, is named formally as executor.

The executor then is responsible for:

  • Communicating with beneficiaries, creditors, debtors, etc. of the estate.
  • Caring for estate property, and consolidating appropriate assets, selling appropriate property, etc.
  • Filing inheritance tax returns and a final income tax return.
  • Paying creditors from the estate assets, as well as distributing the inheritance to appropriate beneficiaries.

Probate cases vary, and there may be additional tasks for the executor depending on the situation. An executor is usually assisted by an estate planning attorney in these tasks as needed.

Although probate sounds burdensome for your executor, Pennsylvania makes probate relatively simple when compared to other states. In Pennsylvania, your executor typically never enters a courtroom. Once he or she is named executor, there is little or no supervision from that point forward (unless, of course, there are conflicts between the executor and beneficiaries). Other states require a court supervised process, which is more time consuming, costly and burdensome.

Many of our clients have notions that they must avoid probate at all costs. There are strategies to avoid probate, but usually, if you only own property in Pennsylvania, it is not advantageous to avoid probate. In Pennsylvania, the costs and administrative duties of probate is on par with the administrative duties of being a trustee.

When crafting your estate plan (your will, trust, etc.), a qualified estate planning attorney will discuss all of your options with you based on the facts and circumstances.

If you want to know if your plan works for you, whether you should avoid probate, etc., please schedule a complementary consultation with us.

 

 

Let our firm assist you: Our firm offers a complimentary estate plan review and consultation. Please call us today at (215) 706-0200 or email us.

Pass the word on: If you know someone who can benefit by reading this blog, please forward it on to them, or subscribe your friend or family member through this link.


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.


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The Law Offices of Jeremy A. Wechsler assist clients with Estate Planning matters in Willow Grove, PA as well as Abington, Hatboro, Dresher, Horsham, Bryn Athyn, Huntingdon Valley, Fort Washington, Jenkintown, Glenside, Oreland, Warminister, Wyncote, Ambler, Elkins Park, Flourtown, Philadelphia, Warrington, Cheltenham, Gwynedd Valley, Jamison, Feasterville Trevose, Richboro, North Wales, Blue Bell, Lafayette Hill, King of Prussia, Collegeville, Oaks, Phoenixville, Oxford Valley, Langhorne, Penndel, Bristol, Fairless Hills, Bensalem, Plymouth Meeting, Furlong, Philadelphia County, Bucks County and Montgomery County.

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