Frequently, in our practice, we are confronted with many misconceptions concerning Pennsylvania inheritance tax. The Pennsylvania inheritance tax is a tax on property at the time of someone’s death and is imposed upon the transfer of that property. One common misconception is that spouses have to pay inheritance tax on property that they obtain from their deceased mate. That was true only until 1994 — it has now been abolished.
Pennsylvania inheritance tax is assessed on virtually all property owned by the decedent 1 himself or with others at the time of death. For instance, if a widow dies owning real estate in her own name, a checking account, a certificate of deposit, an automobile, some stocks and/or bonds, all of those items are taxable, as they would transfer to her beneficiaries, let us presume, her children. The value of these assets must be ascertained as of the date of death. With real estate , the value is often arrived at by having an appraisal performed. With bank accounts and the like, date of death values are obtained from the financial institution. Further, the internet can be very helpful to value stocks and/or vehicles.
From the value of these resources, we are permitted to deduct certain expenses to arrive at a net valuation for the estate. These expenses typically include the cost of the funeral, the debts of the decedent (including mortgage loans, credit cards, home equity loans, etc.), bills and expenses incurred as the result of a last illness, all fees that are paid to the Register of Wills Office, legal fees for processing the estate, and miscellaneous expenses and fees. Once the net value has been calculated, the Pennsylvania inheritance tax, as it pertains to children, is 4.5% of that net value. If property would be passing to a brother or sister, the tax rate would be 12%. Property passing to other individuals would be taxed in Pennsylvania at a rate of 15%.
Many people do not realize that there are certain types of assets that are exempt from inheritance tax. As an example, life insurance proceeds which are paid directly to a beneficiary or are paid to the estate of the decedent are exempt. Further, an IRA account held in the decedent’s name, if the decedent had not reached the age of 59 ½, is also exempt.
Sometimes, jointly held property is ignored for tax purposes at the time of death. For example, where a decedent owns a bank account which is titled in the decedent’s name and, let us say, two of his children’s names, the decedent’s one-third interest would be taxed at a rate of 4.5%. However, if that account was established using only the decedent’s funds, and the decedent dies within one year, then the whole value of the account is taxed, not just a portion of it.
In Pennsylvania, the inheritance tax must be paid within nine months of the time of the decedent’s death. If it is not paid within that period of time, the Pennsylvania Department of Revenue may assess penalties and interest. If payment is made within 90 days of the date of death, the department discounts the amount by 5%.
This article merely scratches the surface concerning the proper filing and payment of Pennsylvania inheritance tax. We are here to assist you at that time and hope that you will consult with us so as to insure a timely tax filing and tax payment that has not only considered the appropriate valuation of the assets, but also taken advantage of all of the expenses and deductions that the department permits. If you desire more information on this topic, please email a Pennsylvania estate planning lawyer now or phone us at 724-837-0080 in Greensburg or toll free at 888-534-6016.
For more information please visit our Wills, Estate Planning, Estate Administration and Probate Information page.
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1 Decedent is the legal term for a person who has died.