One of the goals of estate planning for most people is helping their loved ones avoid unnecessary expenses, including taxes, that can eat away at the assets they plan to leave them. Here in Pennsylvania, that means helping them avoid the state inheritance tax. Pennsylvania is among the few states with a tax on inherited assets for some beneficiaries.
It’s important to understand that the tax applies to property located within Pennsylvania, regardless of where the beneficiary (or the person leaving it to them) lives. Even if someone lives outside the state, they may have to pay the Pennsylvania inheritance tax. Conversely, if they live here in Pennsylvania, but the property they inherit is located in a state without an inheritance tax, it won’t be applicable.
Who may have to pay the tax – and how much?
The inheritance tax is a “percentage of the value of a decedent’s estate transferred to beneficiaries by will, heirs by intestacy and transferees by operation of law.” The rate varies based on how close the familial relationship is.
Surviving spouses and children who are 21 or younger don’t have to pay any inheritance tax. For other relatives, the rates currently are:
- 5% for other direct descendants (adult children) and “lineal heirs” (grandchildren)
- 12% for siblings
- 15% for other heirs
The tax is due no later than nine months after the decedent’s death.
When it comes to beneficiaries like non-profits, universities and other organizations, if they’re non-profit, they typically don’t have to pay this inheritance tax. Farms and other agricultural property may be exempt as well.
With thoughtful estate planning, it’s possible to eliminate or at least significantly minimize inheritance taxes on behalf of loved ones. These can include trusts, title changes on property, gifting and selling or moving property. With sound legal guidance, you can help determine what will work best for your family uniquely.
