The Pennsylvania Inheritance tax is a flat tax on the net value of the taxable estate. The following will provide a basic overview of the Pennsylvania Inheritance Tax rules:
The Pennsylvania Inheritance Tax is imposed on both residents and nonresidents who owned real estate and tangible personal property in Pennsylvania at the time of their death. As a result, all real estate and tangible personal property located within Pennsylvania is taxable. All intangible personal property of a resident decedent regardless of where such intangibles are located is taxable.
In addition, survival action proceeds, certain retirement benefits, IRAs, annuities, in trust for accounts, jointly owned assets with someone other than decedent’s surviving spouse (see following discussion for more details), assets held in revocable living trusts, non-Pennsylvania lottery winnings are also taxable assets for PA inheritance taxes. Be aware that these assets are taxable even though some may pass outside the probate process or by intestacy.
Only the fractional ownership interest of the decedent at the date of death is subject to tax, unless the joint ownership was created withing one year of death. The determination of the decedent’s taxable interest is done by dividing the full value of the property by the number of joint tenants. Remember that joint tenancies with a surviving spouse are not taxable assets for Pennsylvania Inheritance Tax purposes.
If a gift is made within one year of the date of death of the decedent that gift is subject to Pennsylvania Inheritance Taxes. Also, the relinquishment of a power to amend, alter or revoke an inter vivos transfer done within one year of death forces the inclusion of the property subject to this power.
Property subject to a life estate interest retained by the decedent is taxable and is reportable at its full date of death value. Such retained life interests may be either specifically reserved by an instrument of transfer or implicit based on the circumstances and the nature of the transaction.
Pennsylvania has various exemptions from inheritance tax. The most notable is that life insurance proceeds are not taxable. In addition, transfers to charitable and fraternal organizations are exempt from tax. Finally, certain qualified distributions from retirement benefits, IRAs are exempt where the decedent did not have the right to possess, enjoy, assign or anticipate the payments to be made thereunder.
Pennsylvania allows funeral and burial expenses, administrative expenses and debts of the decedent and in certain cases a family exemption.
The value of all assets are determined as of the date of death. Pennsylvania does not allow estates to value assets on an alternate valuation date six months after the date of death. Special valuation rules are used to value life estates and future interests created by the decedent.
The inheritance tax rate depends on the relationship of the beneficiary to the decedent. Transfers to spouses are not subject to tax. The inheritance tax rate for grandparents, parents or lineal descendants are 4 1/2 percent. Siblings are taxed at 12% and transfers for all others are 15%.
The Pennsylvania Inheritance Tax Return, the Form Rev-1500, must be filed within nine (9) months of the date of death.
The above is only an overview of the general rules in this area. Additional details and rules need to be explored before proceeding in this area.
72PA.C.S. Sections 9101-9196.
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