How Pennsylvania Inheritance Tax Impacts Your Estate Plan

Only five states in the nation currently impose an inheritance tax, and Pennsylvania is one of them. As a result, it’s important to keep this tax in mind in relation to your estate plans. Pennsylvania generally applies inheritance tax based on the beneficiary’s relationship to the person who died. Because estate planning is notoriously complex, our experienced Pittsburgh estate planning attorneys at Anderson Law Firm are committed to sparing no effort in our quest to bolster our clients’ confidence in related matters, and we’re here for you, too.

Estate Tax vs. Inheritance Tax

A clear distinction exists between the estate tax and the inheritance tax. Estate tax applies to the full value of your estate at the time of your death, before your assets are distributed to your loved ones. Pennsylvania does not impose an estate tax, but the federal government does. The federal estate tax threshold is adjusted yearly and applies only to large estates.

Inheritance tax, on the other hand, is owed by the beneficiaries who receive assets from your estate. And in Pennsylvania, the tax rate is determined by the beneficiary’s relationship to you.

Pennsylvania’s Inheritance Tax Structure

All the following apply to Pennsylvania’s inheritance tax structure:

• No inheritance tax applies to your surviving spouse or to any of your children who have not reached the age of 21.
• Transfers to qualified charitable organizations are also tax-exempt.
• The transfer of jointly owned property to your spouse incurs no inheritance tax.
• Beneficiaries who are your adult children or other direct descendants, including grandchildren, great-grandchildren, parents, grandparents, and the spouses of your children, are taxed at a 4.5 percent rate.
• If the beneficiary is a sibling, they will be taxed at a rate of 12 percent.
• All other beneficiaries, whether they are related or not, pay a 15 percent inheritance tax.

Taking a Strategic Approach to Inheritance Tax

There are strategies you can implement to help limit your loved one’s tax liability while continuing to help ensure that your wishes will be upheld.

Lifetime Gifting Programs

During your lifetime, you may use a gifting strategy to transfer assets to family members or other beneficiaries. Federal gift-tax rules vary depending on the amount transferred and other circumstances, so plan larger gifts carefully. For Pennsylvania inheritance-tax purposes, gifts made within one year of death may be subject to inheritance tax to the extent they exceed $3,000 per transferee per calendar year.

Estate Planning Strategies to Discuss With an Attorney

Dynasty trusts can afford powerful protections for passing wealth down through the generations while managing transfer taxes. A knowledgeable estate planning lawyer will help you strategize the best path forward.

Our Experienced Pittsburgh Estate Planning Lawyers Are Here to Help

We help clients evaluate estate-planning strategies that may reduce tax exposure while supporting their broader estate-planning goals. For more information about how we can help, contact us online or call 412-209-3200 today.