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.
Inheritance tax is just PART of the estate administration process. An estate works best when properly planned for. Check out our new ESTATE PLANNING 101 WEBINAR (complimentary!) to learn more about the fundamentals of estate planning. Watch any time on-demand.