The Pennsylvania Inheritance Tax

by | Jun 24, 2011 | Articles

Inheritance Tax is imposed on the value of a decedent’s estate transferred to beneficiaries by will or intestacy. It is calculated at a percentage of the value of the assets transferred, which is determined by the relationship of the heir to the decedent and the decedent’s date of death.

What property is subject to Inheritance Tax?

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.

What is the Inheritance Tax rate in Pennsylvania?

The tax rate for Pennsylvania Inheritance Tax is 4.5 percent for transfers to direct descendants like children and grandchildren (lineal heirs), 12 percent for transfers to siblings, and 15 percent for transfers to other heirs (except charitable organizations, exempt institutions, and government entities which are exempt from tax). Property owned jointly between husband and wife is exempt from Inheritance Tax. Since 1995, property inherited by a surviving spouse, or from a child 21 or younger by a parent, is taxed at a rate of 0 percent.

Who are lineal heirs and lineal descendants for the purpose of Inheritance Tax?

Lineal heirs are grandfathers, grandmothers, fathers, mothers and their children. “Children” include natural children (whether or not they have been adopted by others), adopted children and stepchildren. Rev. 07/21/09 Lineal descendants include all children of the natural parents and their descendants (whether or not they have been adopted by others), adopted descendants and their descendants and step-descendants.

Is there a discount on PA Inheritance Tax?

The tax is due at the date of death and becomes delinquent nine months after the date of death. There is a discount of five percent of the tax paid or the tax due, whichever is less, when the payment is made within three months of the date of death.

Can the funeral expenses and unpaid bills of the decedent be deducted from the amount subject to tax?

Yes. Unsatisfied liabilities incurred by the decedent prior to his/her death are deductible against his/her taxable estate. In addition to debts incurred by the decedent or the estate, the cost of administration of the estate, attorney fees and fiduciary fees incurred to administer the estate, funeral and burial expenses, including the cost of a burial lot, tombstone or grave marker, and other related burial expenses, are deductible. For the sake of convenience, I put my mother’s name on my savings account. Recently my mother died and now I am being told that I will have to pay an

Inheritance Tax on my own money. Can this be correct?

Under the Inheritance Tax Law, the account was jointly owned because you and your mother had equal access to the account. Therefore, in this example, the survivor is taxed on one-half of the amount in the account.

If an individual dies before they reach the age of 59 1/2, is the decedent’s IRA or 401K subject to PA Inheritance Tax?

IRA’s are not subject to Inheritance tax when the decedent is under the age of 59 ½ at the time of death. For 401K’s, the same provision applies unless the owner of the plan could have closed out the plan during their lifetime. In most plans, the right does not accrue until the “normal retirement age” is reached, which is usually 62 or 65 years of age.

Who files the Inheritance Tax return?

Inheritance Tax returns are due nine 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.

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