Phase 1: PA Inheritance Taxes

 

Pennsylvania has an inheritance tax which is a tax on the inheritance of property, whether real or personal. It is not a tax on the property itself but is based on the value of the property.

 

Transfers that are subject to inheritance tax include:

  • Transfers made without any money passing hands (i.e., for $1.00 or for natural love and affection) made within one year of the transferor’s death. This rule does not apply if the transfer is made for actual consideration, i.e, the buyer pays for the property.
  • Transfers where the grantor retains a life estate in the property.
  • Transfers where the grantor retains the power to alter, amend or revoke the interest transferred (for instance, revocable trusts).
  • When property is owned as “joint tenants with rights of survivorship and not as tenants in common,” upon the death of one of the “joint tenants,” his interest is taxable. This is not the situation where a husband and wife owns a property together and one of them dies. In that case there is no inheritance tax due.
  • Transfers made in consideration of the grantee’s promise to care for the grantor for life.

 

Transfers that are not subject to inheritance tax include:

  • Transfers of property to federal or state government or any political subdivision.
  • Transfers to charitable organizations.
  • Transfers to irrevocable trusts as long as the grantor does not retain the income from the trust for his life.

 

The current inheritance tax rate for an individual who dies from July 1, 2000 to the present are as follows:

  • To a Spouse 0%
  • To a Parent, Grandparent, Child, Grandchildren, and Wife or Widow and Husband or Widowers of a Child 4.5% (one exception is a transfer from a child age 21 or younger, to a natural or adoptive or stepparent is 0%
  • To a Sibling 12%
  • To any person who does not fall in one of the above categories 15%

 

For an individual who dies prior to July 1, 2000, differing tax rates apply. Please consult Settlements, Ltd. if you have a question concerning any of the above.

 

Inheritance tax is based on the value of the transferred property as of the date of the transferor or decedent’s death (with allowable deductions such as expenses of the administration of the estate, funeral and burial expenses, property taxes, mortgages, liens of record, closings costs, other debts such as medical). Inheritance tax, if unpaid, is a lien upon real property. The lien relates back to the date of death. Nothing needs to be filed by the PA Department of Revenue to impose such a lien although the Department of Revenue may file a certificate of non-payment of inheritance tax within the 20 year lien period (the time the lien continues to exist). The filing of such a certificate extends the lien for a period of five years. The Department of Revenue can refile every five years in order to further extend the lien.