There are different types of taxes that can diminish the value of your estate. These taxes vary by state. For example, some states (not including Pennsylvania) have their own estate tax. There’s also a federal estate tax for high-value estates.
Pennsylvania is one of a handful of states that has an inheritance tax on property that’s located in the state, regardless of where the beneficiary lives. It’s important to know how this tax works and how it might affect your loved ones after you’re gone. This may help you minimize or even eliminate the tax for your beneficiaries as you develop your estate plan.
The tax rate depends on the relationship to the deceased
According to the Pennsylvania Department of Revenue, the inheritance tax is levied “as 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 tax rates are currently:
- 0% for a surviving spouse or child who’s 21 or younger
- 5% for other direct descendants and “lineal heirs” like grandchildren
- 12% for siblings
- 15% for all other heirs
Farms and other agricultural property may be exempt from inheritance taxes. Tax-exempt charities, institutions and government entities may also be exempt.
There are ways to help loved ones avoid this tax
There are a number of strategies for helping beneficiaries avoid inheritance taxes, including trusts, gifting, joint ownership of property or selling property that’s located in Pennsylvania while you’re still alive.
If some of your heirs will need to deal with inheritance tax, make sure they’re aware of the requirements. For example, inheritance tax generally must be paid within nine months of someone’s death or there will be penalties.
Seeking legal guidance may help you craft an estate planning strategy that better ensures the preservation of as much of your estate as possible.
