PENNSYLVANIA INHERITANCE TAX
One of the first questions asked by those who prepare to plan their estates
is "How will my property be taxed at the time of my death?" Many are
pleased to know that they need not worry about federal
estate tax since Uncle Sam imposes this levy in the year 2009 only if the
estate exceeds $3.5 million (the federal estate tax threshold may be changing).
The same, however, cannot be said of
However, Governor Ridge signed a new tax act on
The new tax act also introduces a new rate for transfers to siblings.
Siblings are defined to include those who have at least one parent in common
with the decedent, whether by blood or adoption. Assets that pass to siblings
will now be taxed at 12%. Once again this applies to
decedents dying after
The final change under the new tax act has to do with an exemption from tax that applies to assets that pass from a child to a parent. Upon the death of a child age 21 or younger, there is no longer any tax on assets that pass to that child's parent or stepparent.
For many, these tax rates sound steep. Fortunately, however, the tax is not
imposed on the gross value of your estate. First, when your executor or
administrator prepares the tax return, they will get to deduct debts that you
owed, funeral expenses and any other estate settlement costs. A $3,500 family
exemption may also be available as an additional deduction. Secondly, certain
property is exempt from the tax altogether. The most important exemption is for
property that is owned jointly by a husband and wife. Therefore, if you and
your spouse own all of your property jointly, upon death of the first spouse
there will be no
Life insurance proceeds are also exempt from
While these exemptions are nice, certain other property is subject to tax even though you may not have owned property at the time of your death. For instance, if you gave your entire estate to a child, but failed to survive that gift for a period of one year, that gift would be subject to a 4.5% inheritance tax to the extent it exceeded $3,000. Also, suppose you give your house to your son but reserve the right to live there for the rest of your life. Because you reserved this right, the entire value of the house would be taxed upon your death.
As you can see, many factors will influence the amount of inheritance tax your estate will have to pay. These include the type of property you own, the manner in which you own your property and the relationship of your intended beneficiaries. As is the case with any other tax matter, proper planning can save taxes and ensure that you ensure that you pass along all that you're worth.
All contents Copyright © Robert Clofine 2000-2009