Pennsylvania Inheritance Tax and Pennsylvania Probate – Quick Review

We receive many questions about PA Inheritance Tax and probate matters, so here are a few pointers.

  • PA Inheritance Tax Basics: Pennsylvania imposes an inheritance tax upon death on all property that you own in PA, including real estate and financial assets. So, if you live in PA and have no other real estate, then all of your estate is subject to PA Inheritance Tax. If you live in PA but have a second home in Florida, the Florida home is not subject to PA Inheritance Tax. Life insurance proceeds are typically not subject to PA Inheritance Tax. Joint accounts are subject to the tax for the deceased owner’s share (i.e., two individuals own a joint account 50/50, then 50% is taxable).
  • PA Inheritance Tax Rates as of 2021: 
    • 0% for Spouses/Charities
    • 4.5% for kids, grandkids, parents
    • 12% for siblings
    • 15% for anyone else (partners, girlfriend/boyfriend, cousin, nephew, niece, friend, etc.)
  • PA Inheritance Tax Due Dates:
    • 9 months after death
    • To get a 5% discount, paid within 3 months of death
    • An automatic 6 month extension may be granted if requested prior to the 9 month deadline, but interest will accrue after 9 months. Interest is typically minimal, unless years of accrual.
  • Probate Process in Pennsylvania: Probate is generally informal in Pennsylvania, meaning that unless there is a dispute, challenge or conflict, the probate process stays out of the courts. That makes probate generally simpler and cheaper. Yet, as an Executor, you should surely still take the process seriously and handle the estate by the book. As an Executor, you are a fiduciary of the estate, meaning that you have to act within the best interests of the estate and all beneficiaries. Therefore, hiring an attorney is recommended to ensure the estate is administered properly. Probate fees for the state are usually less than $1,000. The biggest bite typically comes from the inheritance taxes (see above). 
  • General Probate Steps: These are a few basic steps, but every estate is different and there are typically several moving parts and unique issues to deal with. As they say, the devil is in the details. 
    • Get sworn in as Executor/Administrator
    • Notify creditors and beneficiaries that estate is opened
    • Gather all assets, liquidate/sell and transfer into an estate bank account
    • Compile, file and pay PA Inheritance Taxes and any other taxes as necessary
    • Negotiate with/pay creditors
    • Provide an accounting and settlement agreement to beneficiaries
    • Distribute assets and close estate, filing any final paperwork/tax forms
  • How Long Does PA Probate Take? Generally, beneficiaries should expect to wait 2 years to receive their inheritance. Why? Three reasons. First, creditors have a year from notice to come forward. Distributions shouldn’t be made prior to that. Second, filing PA Inheritance Taxes usually doesn’t happen until at least 6 months in, then we have to wait another 6 months to get an appraisal back approving the return. Third, selling real estate can take time, holding up the filing of the inheritance tax return. So in general, we tell beneficiaries two years–give or take, depending on the facts and circumstances of the matter. Sometimes, a partial distribution can be made if there is certainty regarding outstanding debts, amount of assets in the estate, etc. Again, this should be handled with an estate planning/probate attorney.
  • Should Probate Be Avoided? In some cases, it can be avoided. For instance, using a Revocable Living Trust can avoid probate in PA–but the trust still is subject to the same creditor review (1 year), still subject to PA inheritance taxes, and the Trustee is still a fiduciary. So, at the end of the day, it will still take time and may not provide much benefit. However, if you own property in multiple states, particularly in a state where probate is burdensome, then avoiding probate may be advantageous. Talk to an estate planning attorney about your options.

If you are an Executor of an estate, or want to plan your estate properly to ease the costs and time of estate administration, call my office today at (215) 706-0200 to schedule a consultation.

Also, be sure to check out our on-demand Estate Planning 101 Webinar, free to you. Learn about the fundamentals of estate planning so that you can determine how best to plan your estate and whether probate avoidance is necessary or not.