Unlike Federal Estate Tax which is only assessed if the value of an estate exceeds
11 Million Dollars, Pennsylvania Inheritance Tax applies regardless of the size of an estate. Pennsylvania’s Inheritance Tax is a transfer tax on the property that a beneficiary will receive from your estate. The tax amounts vary based upon your relationship to the decedent and the value of the property you will be receiving. In Pennsylvania, the inheritance tax rates are as follows:
— Parents, children, grandchildren and stepchildren, are taxed at a rate of 4.5%.
— Siblings are taxed at a rate of 12%.
— Nieces, nephews and unrelated individuals are taxed at a rate of 15%.
If a child under the age of 21 dies with assets, the assets passing from the child to the parent or stepparent will not be taxed.
Charities are exempt from Pennsylvania Inheritance Tax, as are assets which are owned by spouses with the right of survivorship.
At the time counsel for the Executor or Administrator prepares the Tax Return, the tax is not imposed on the gross value of the estate. The outstanding debts are deducted, as are the funeral expenses and other estate settlement costs. There is also a $3,500 family exemption deduction for relatives with whom the decedent resided.
Some types of property are entirely exempt from taxation. Typically, a husband and wife own their property jointly. Upon the death of the first spouse, there will be no Pennsylvania Inheritance Tax due. If one spouse owns property in his or her name alone, then it would be taxable; however no tax would be owing because the spousal tax rate is set at zero percent.
Life Insurance proceeds and certain types of retirement plans are exempt from Pennsylvania Inheritance Tax, as are family owned businesses that meet the qualifications set forth in Act 52 of 2013. Farms may also be exempt if they are passing to a child, grandchild or sibling.
In addition, certain bank accounts, stocks, bonds, mutual funds and other securities can be designated as “pay on death” or “transfer on death” to make for a smoother transfer of those assets upon your death; however, they are still subject to the applicable tax. It is also very important when designating assets in this way that you make sure you are not contradicting the terms of your Will.
If a parent gifts their home or other assets to a child but does not survive for a period of one year thereafter, the gift would be subject to the 4.5% inheritance tax if it had a value in excess of $3,000. Likewise, when gifting a home to a child, but reserving a lifetime right to reside in the home, upon your death, the value of the home would be taxed.
Pyfer Reese is here to assist with your estate planning and to help you navigate through the complex estate administration process. Our experienced attorneys can provide you with an individualized plan to ensure your beneficiaries receive the maximum net amount possible from the inheritance you leave for their benefit. Contact us today at 717-299-7342 for a convenient appointment with one of our attorneys.
~Christopher C. Straub, Esquire