[The following guest article was written by Elizabeth White, a lawyer with Marshall, Parker and Weber in Williamsport, Pennsylvania. It is reprinted here with her permission. In this article Liz answers a number of common questions about the workings of the Pennsylvania inheritance tax.]
Pennsylvania is one of a handful of states that imposes an inheritance tax on property that passes to beneficiaries when a resident passes. Most people are not familiar with Pennsylvania inheritance tax, because unlike income tax that needs to be addressed every year, Pennsylvania inheritance tax only comes into play when someone dies.
Below are examples of common questions and concerns voiced by clients about Pennsylvania inheritance tax. Please note that these are general questions and responses, and each client’s circumstance is different. There are certain exemptions and exceptions from Pennsylvania inheritance tax that may apply. An elder law firm such as Marshall, Parker & Weber can discuss inheritance tax in relation to your situation.
My grandmother passed away and I am a beneficiary in her will. My grandmother resided in Pennsylvania, but I don’t live in Pennsylvania. Is there Pennsylvania inheritance tax on the money I receive from her estate even though I live out of state?
Pennsylvania inheritance tax is assessed on certain assets of a Pennsylvania resident that pass to his or her beneficiaries. The tax is due because a person who lived in Pennsylvania (the Decedent) left assets to these beneficiaries. The tax does not change based on the location of residence of the beneficiary or beneficiaries of the estate. Beneficiaries often live in other states, or even other countries. Whether the beneficiary lives in Pennsylvania, California, or Spain, Pennsylvania inheritance tax comes into the picture if the Decedent was a resident of Pennsylvania.
My mom passed away. She left her house to me and some money to my aunt (my mom’s sister). The rate of inheritance tax that was applied for the property that my mom left to me was significantly less than the rate that was applied to the money left to my aunt. Is this correct?
Pennsylvania inheritance tax rates are based on how the Decedent is related to the beneficiary. The current rates are as follows:
- 0% on transfers to a surviving spouse or to a parent from a child aged 21 or younger;
- 4.5% on transfers to direct descendants and lineal heirs (i.e., children of parents and their descendants, step-descendants, grandparents, and parents);
- 12% on transfers to siblings; and
- 15% on transfers to other heirs, (i.e., nieces and nephews, and friends) except charitable organizations, exempt institutions and government entities exempt from tax.
In your situation, different rates applied because of the different relations to your mother. You are a child of your mother, a direct descendent, and as such the property that passes to you is taxed at a 4.5% rate. Your aunt, as a sibling of your mother, is taxed on the assets she receives at a 12% rate.
Does Pennsylvania inheritance tax get paid with my income tax payment?
Pennsylvania inheritance tax is a totally separate tax than income tax. A different tax return is filed and payments are made separately to the Pennsylvania Department of Revenue. Inheritance tax is due nine (9) months from a person’s date of death. If tax is paid within three (3) months, a discount is given by the Department of Revenue on the tax ultimately due. While there may be income tax implications to an estate, these taxes are a different tax altogether than Pennsylvania inheritance tax.
Is the filing date for the Pennsylvania inheritance tax return April 15th? Will my accountant know to file this tax return?
Pennsylvania inheritance tax filing deadlines are not based on income tax filing deadlines, since it is a separate tax and return. The filing deadline for a Pennsylvania inheritance tax return is nine (9) months from the Decedent’s date of passing. Lawyers typically prepare and file Pennsylvania inheritance tax returns in Pennsylvania. That does not mean that your accountant cannot assist you in any income tax returns that may need to be prepared and filed for an estate, but, as mentioned earlier, income tax is a completely different tax and return.
My family has owned a farm for generations. My parents are leaving the farm to me and my two siblings when they pass away. I heard from someone that we won’t have to pay any inheritance tax on the farm when mom and dad die. Is that true?
There are exemptions from inheritance tax for family farms in Pennsylvania, if certain criteria are met. Exemptions include the “business of agriculture” exemption, which was enacted in 2012. The “business of agriculture” exemption requires that the farm be devoted to the business of agriculture at the Decedent’s death, transferred to “members of the same family”, continue to be devoted to agriculture for a period of seven years after the Decedent’s death, and produce annual gross income of at least $2,000.00 each year for the period of seven years. Additionally, each family member who owns the real estate needs to file a certification with the Department of Revenue on an annual basis for the seven years following the Decedent’s death.
There is also a “farmland-other” exemption available, with a different set of criteria, including that the agricultural transfer must be an agricultural commodity, agricultural conservation easement, agricultural reserve, agricultural use, or forest reserve property.
More information on these exemptions and who qualifies under the terms “business of agriculture” and “members of the same family” can be found here: Marshall Elder and Estate Planning Blog: Business of Agriculture Exemption
I hear politicians on the news talking about why the Federal government should repeal the Federal estate tax. Does this include Pennsylvania inheritance tax?
The estate tax that you hear about in the news is the Federal estate tax. This is a different tax than Pennsylvania inheritance. The Federal estate tax is part of a group of Federal taxes that includes estate, gift, and generation-skipping taxes. These taxes are levied on the transfer of wealth from generation to generation. In 2015 there is no Federal Estate tax on the first $5.43 million that passes to your beneficiaries ($10.86 combined for a married couple). Due to the high amount that one needs to own at death for this tax to apply, the tax does not affect most people. However, if your estate at death may exceed $5.43 million you can engage in planning now that can help your estate avoid Federal Estate Taxes.
If your loved one has recently passed and you have questions about Pennsylvania inheritance tax, or you want to discuss how Pennsylvania inheritance tax may affect your family when you die, Marshall, Parker & Weber would be happy to meet with you to address your questions.
For more information on Pennsylvania inheritance tax visit the Pennsylvania Department of Revenue’s brochure - Inheritance Tax General Information or the Instructions for the PA Inheritance Tax Return.
you can visit the Pennsylvania Department of Revenue’s website at: Pennsylvania Department of Revenue - Inheritance Tax