The adage “nothing is certain but death and taxes,” which has been attributed to Benjamin Franklin, is still true today. Moreover, taxes can follow you and your loved ones after you’re gone.
Unlike some states, Pennsylvania doesn’t have its own estate tax (although there is a federal tax on high-value estates). However, it is one of a handful of states that impose an inheritance tax in some cases on those who have inherited assets.
By learning more about Pennsylvania’s inheritance tax, you can help your loved ones and other beneficiaries avoid it through careful estate planning. Let’s take just a brief look at it.
First, it’s important to know that only assets located in Pennsylvania are subject to our state’s inheritance tax. It has nothing to do with where the beneficiary lives.
Inheritance tax rates vary by relationship
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,” according to the Pennsylvania Department of Revenue. The rate varies depending on the relationship of the heir to the decedent.
The current rates are as follows:
- Zero for a surviving spouse or child who’s 21 or younger (including property jointly owned by spouse)
- 4.5% for other direct descendants and “lineal heirs” such as grandchildren
- 12% for siblings
- 15% for other heirs
Inherited agricultural property (like farms) may be exempt from inheritance taxes. Further, “charitable organizations, exempt institutions and government entities exempt from tax” are typically exempt from inheritance taxes.
If you aren’t going to be able to save your loved ones from inheritance taxes, it’s important to make sure they know about them, as they have a limited amount of time to pay them (typically nine months after the death). However, with sound legal guidance, you can explore strategies to avoid inheritance and estate taxes that would minimize what you want to leave to your loved ones and the organizations you wish to support.