Estate and Inheritance Taxes

There are ways to reduce or avoid estate and inheritance taxes, but they do not always apply. Speaking to an experienced estate planning attorney is the best way to create a plan that benefits you today and protects your loved ones tomorrow.

Estate law can get pretty complex and undergoes changes relatively often, making it hard for clients to stay current. At RJ Fichera Law Firm, we thoroughly review your estate and advise you accordingly. We know that informed clients make the best decisions about their finances. 

Contact us today either online or at 610-768-9255 to schedule a Free Consultation.

Understanding Pennsylvania Estates: State versus Federal Estate Taxes.

Some states have an estate tax, while others have an inheritance tax, and still, others have neither. See Blue Charts to the Right. 

N.B. Estate taxes are paid by a decedent's estate. Inheritance taxes are paid by the heirs of the estate.

However, there is a federal estate tax that is applicable to all states. Fortunately, the exemption amount is so high most people do not have to pay a federal tax.

For the year 2023, the federal exemption for an individual is $12.92 million, which means that they may leave their beneficiaries up to $12.92 million in property without having to pay any estate tax.

Estate Tax versus Inheritance Tax

Pennsylvania does not have an Estate Tax. It does, however, have an Inheritance Tax.

An estate tax differs from an inheritance tax in that the beneficiary (or person inheriting from the decedent) is responsible for paying an inheritance tax. An estate tax and an inheritance tax are both different from a gift tax, which only applies to transfers that are made during the giver's lifetime.

As noted earlier, some states, not Pennsylvania, have an estate tax that must be paid when a person dies. This tax applies regardless of who inherits from the estate. Typically, the executor files a single estate tax return and pays the tax out of the funds of the estate.

About the Pennsylvania Inheritance Tax

The tax rate for Pennsylvania Inheritance Tax is 4.5% for transfers to direct descendants (lineal heirs), 12% for transfers to siblings, and 15% for transfers to other heirs (except charitable organizations, exempt institutions, and government entities that are exempt from tax). Property owned jointly between husband and wife is exempt from inheritance tax, while property inherited from a spouse or from a child aged 21 or younger by a parent is taxed at a rate of 0%.

Inheritance tax returns are due nine (9) calendar months after a person's death. The responsible party is the person named in the will as executor or, if the person dies without a will, the individual who is approved as administrator by the register of wills after a petition is filed. If no executor or administrator is named, and property or transfers exist, then the person receiving the property is required to file a return and pay the tax.

Pennsylvania Inheritance Tax Rates for a Surviving Spouse

The rate of tax imposed on transfers to or for a surviving spouse is based on the date of death of the decedent as follows:

•  On or after January 1, 1995 -- Tax Rate: 0%
• After June 30, 1994 and before January 1, 1995 --Tax Rate: 3%
• Before July 1, 1994 --Tax Rate: 0%

Property Subject to Inheritance Tax in Pennsylvania

All real property and all tangible personal property of a resident decedent, including but not limited to cash, automobiles, furniture, antiques, jewelry, etc., located in Pennsylvania at the time of the decedent's death is taxable. All intangible property of a resident decedent, including stocks, bonds, bank accounts, loans receivable, etc., is also taxable regardless of where it is located at the time of the decedent's death.

In the case of a nonresident decedent, all real property and tangible personal property located in Pennsylvania at the time of the decedent's death is taxable. Intangible personal property of a nonresident decedent is not taxable.

Jointly owned property with right of survivorship, except between husband and wife, including but not limited to real estate, securities, bank accounts, etc., is taxable to the extent of the decedent's fractional interest in the joint property (calculated by dividing the value of the joint property by the number of joint owners at the time of the decedent's death). Joint property is taxable even though the decedent's name was added as a matter of convenience. Further, if the decedent created the joint interest in the property within a year of his/her death, the full value of the property is taxable in the decedent's estate.

Who Pays the Estate Tax?

When someone dies, there is a person that is appointed in the decedent's Will, or by the court if there is no Will, that is in charge of administering the estate of the deceased. In some states, this person is known as the personal representative, while in others, they are known as the executor.

No matter what they are called, this is generally the person that is responsible for handling the payment of the estate tax. It is paid from the estate prior to its being distributed among the beneficiaries.

How to Avoid Estate Taxes/Inheritance Taxes

There are different ways to avoid having to pay an estate tax, including:

• Gifting property to family members
• Creating a trust
• Donating property to a charity

Which of these ways, if any, can apply will depend on the state and circumstances of each individual situation.

Benefits of Hiring an Estate Planning Lawyer

An estate planning attorney is a lawyer that focuses their practice on helping clients create comprehensive estate plans that meet their short- and long-term goals. The benefits of having an Estate Panning lawyer on your side include:

• You have the peace of mind of knowing that your plans are compliant with local, state, and federal law.
• Your initial thoughts on what you desire in your estate plan may not be the best for your situation, and an estate planning lawyer will know this and explain better options to you.
• When you hire an estate planning attorney, your estate plan will be customized to address your unique needs.

Spending some money up-front on an estate planning lawyer can end up saving significant time and money down the road.

Contact Our Law Firm Today

It is always to your advantage to speak with an Estate Planning attorney about your estate and what documents should be included in an Estate Plan. Our goals at RJ Fichera Law Firm are to make sure you benefit from an Estate Plan today and that your family (and other loved ones) receive the benefits you intend to provide for them. Contact our office online or at 610-768-9255 to schedule a Free Consultation and to get started on a smart estate plan.

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