Pennsylvania requires some beneficiaries to pay an inheritance tax on most assets that are transferred when someone dies. Knowing how inheritance tax works in Pennsylvania can help you with estate planning and make things easier if you are the executor or personal representative of someone’s estate. An estate planning lawyer can evaluate your specific situation and advise you on which assets are subject to estate tax and ways to maximize your beneficiaries’ inheritance.
Pennsylvania Inheritance Tax Rates
Inheritance tax rates vary according to the beneficiary’s relationship with the decedent. Inheritance tax rates for Pennsylvania are as follows:
- 0% for a spouse, a child under the age of 21, or the parent or stepparent of a child under the age of 21 who has an estate
- 4.5% for direct descendants, which include children & stepchildren over the age of 21, grandchildren, and parents
- 12% for siblings
- 15% for other beneficiaries, excluding charitable organizations and institutions or government entities that are exempt from tax
Types of Property Subject to Inheritance Tax
All of a decedent’s real property located in Pennsylvania is subject to inheritance tax. This may include cash, motor vehicles, jewelry, furniture and other tangible items. Intangible property such as stocks, bonds, business interests, retirement accounts, and loans receivable are also taxable, regardless of where they are located. If the decedent owned joint property with someone who was not their spouse, their fractional interest in the joint property is taxable.
Proceeds from life insurance policies are not subject to inheritance tax in Pennsylvania. Some farmland and other property used for agricultural purposes are exempt from inheritance tax as well. Determining what is taxable and what is not can be tricky, as there are certain rules on lifetime gifts that are given or transferred within a year of the decedent’s passing. A lawyer who deals with wills and estate planning can help guide you through the process and assist you with filing an accurate inheritance tax return.
Paying Inheritance Tax
If inheritance tax is paid within 90 days of the death, a 5% discount is given. It becomes delinquent if it is not paid within nine months of the death. The inheritance tax return is a complex document and there are expenses that may be deducted, including certain expenses incurred by the estate and deductions for debts of the decedent. Only one return is required, even if several people owe inheritance tax. The executor or administrator in charge of the estate is responsible for filing the return, but having an experienced probate attorney prepare an inheritance tax return can ensure that it is completed and filed in an accurate and timely manner.
Whether you are interested in estate planning or need assistance as the executor of an estate, our experienced legal team at Carosella & Associates can help.