Pennsylvania is one of few states that does in fact have inheritance tax. The amount of tax paid varies depending on your relationship to the decedent. Spouses pay 0% inheritance tax, direct descendants, such as children and grandchildren, pay 4.5%, siblings pay 12% and all other transfers are taxed at a rate of 15%. While most property is subject to inheritance tax, including property gifted in the year prior to the decedent’s death, some property is exempt, such as donations to charitable organizations and in most cases, life insurance on the life of the decedent.
Ways to avoid inheritance tax are to make gifts during your lifetime, within the yearly taxable limits, investing in nontaxable life insurance and looking into options such as an irrevocable trust which will allow assets to pass without being taxed. Another way to avoid inheritance tax is by titling assets jointly, which will minimize the portion of the asset your heirs will pay.
For example, if you have a bank account worth $30,000 in your name alone, when that bank account is distributed to your heirs, they will be taxed on the entire $30,000, at whichever rate applies to them. If the bank account was titled in your name and in addition a child’s name for example, the contents of the account are viewed as a 50/50 split. Therefore, 4.5% tax would only be paid on $15,000, rather than the entire $30,000. It’s important to note there are other legal implications to creating jointly titled assets, which can be further discussed and explained with an estate planning attorney.
Our office would be happy to assist you with these decisions, by working to provide an estate plan that best fits you while also working to minimize the amount of inheritance tax loved ones pay.
If you have any questions about the topic discussed in this video, or any estate law matter, please give us a call at Bononi & Company 724-832-2499.