You may have heard that the regulations surrounding estate taxes vary state by state. But also, some states adopt an inheritance tax, while others do not observe it. With this tax type, varying rates may be assigned to different beneficiaries, depending on their relationship to the deceased, and exclusive exemptions may or may not be in effect in the deceased’s home state. Understandably, all these contradictory rulings can be quite confusing, whether you are someone crafting an estate plan or potentially inheriting a loved one’s estate. So please read on to discover whether Pennsylvania applies an estate tax and how one of the seasoned Butler County irrevocable tax trust attorneys from Heritage Elder Law & Estate Planning, LLC can help you prepare accordingly.

Does Pennsylvania have an estate tax, an inheritance tax, or both?

Many Pennsylvanians may be surprised to learn that the state does not impose a traditional estate tax. This is the tax that otherwise would have been paid by the deceased’s estate before assets are distributed to designated beneficiaries. However, Pennsylvania does collect an inheritance tax. Here, in contrast to an estate tax, this is paid by the beneficiaries who receive specific assets from the deceased’s estate.

Who must pay the Pennsylvania inheritance tax, and what assets are taxed?

As insinuated above, only certain assets may be subject to the Pennsylvania inheritance tax. Therefore, beneficiaries who inherit any of the following taxable assets may be expected to pay:

  • Real estate property located in the Commonwealth of Pennsylvania.
  • Funds in checking and savings accounts, stocks, bonds, mutual funds, etc.
  • Tangible personal property like vehicles, furniture, antiques, jewelry, artwork, etc.
  • Ownership stakes in a business like sole proprietorships, parnerships, and corporations.
  • Assets held in a revocable trust and funds in retirement accounts like IRAs and 401(k)s.
  • Lifetime gifts made within one year of the deceased’s death, exceeding $3,000 per beneficiary per calendar year.

That said, though, only specific types of beneficiaries are allowed to be taxed for the assets. It depends on the familial tie a beneficiary had with the deceased. Examples are as follows:

  • The surviving spouse of the deceased may not be subject to an inheritance tax.
  • The surviving parent of a deceased child aged 21 or younger may not be subject to an inheritance tax.
  • Certain qualified charitable organizations and government entities may not be subject to an inheritance tax.
  • Surviving children (i.e., biological, adopted, and stepchildren), grandchildren, and parents may be subject to a 4.5 percent inheritance tax.
  • Surviving siblings (i.e., siblings by blood, siblings by adoption, and half-siblings) may be subject to a 12 percent inheritance tax.
  • All other qualified beneficiaries (i.e., nieces/nephews, aunts/uncles, cousins, and friends) may be subject to a 15 percent inheritance tax.

So, if you wish to gain more clarity on the situation you are dealing with, the best way to get it is by consulting with one of the competent Butler County estate planning attorneys. Get in touch with our team at Heritage Elder Law & Estate Planning, LLC today.