As a resident of Pennsylvania, understanding the state’s inheritance tax laws is crucial to creating an effective estate plan. Pennsylvania is one of the few states in the US that imposes an inheritance tax, which is levied on the transfer of assets of a decedent to their designated beneficiaries.

What Is The Inheritance Tax Rate In PA?

Inheritance tax is imposed as a percentage of the value of a decedent’s estate that is transferred to heirs or beneficiaries. The tax inheritance tax rates in Pennsylvania vary depending on the relationship of a beneficiary or heir to the decedent, as follows:

• 0% inheritance tax rate: The surviving spouse does not pay a Pennsylvania Inheritance tax. Charities and the government are generally exempt from paying the tax as well. Parents, stepparents, and adoptive parents who inherit from a child under 21 years of age do not have to pay an inheritance tax.
• 4.5% inheritance tax rate: Transfers to children, parents, grandparents, and other direct descendants, such as step-children and adopted children, are subject to a 4.5% inheritance tax rate. Transfers to an ex-spouse are also taxed at 4.5% unless the spouse remarries.
• 12% inheritance tax rate: Assets passing to siblings, including half-brothers and half-sisters, pay a 12% transfer tax. Step-siblings do not qualify for this rate.
• 15% inheritance tax rate: Anyone else who inherits assets from the decedent, such as friends, non-relatives, and others who don’t qualify for a lower rate, are subject to a 15% inheritance tax.

Who Does The PA Inheritance Tax Rate Impact?

The state inheritance tax applies to the estate of anyone who lives in Pennsylvania or who owns real estate or tangible property in Pennsylvania. The beneficiaries who receive the property are required to pay the tax. As a practical matter, the executor or administrator of the decedent’s estate calculates the amount of the tax, files an inheritance tax return, and then pays the amount of the tax. The tax is paid on any assets the decedent controlled, such as real estate, bank accounts, car titles, and revocable trusts. Generally, a decedent (while alive) does not control an irrevocable trust – so there’s no inheritance tax on an irrevocable trust.

What Form Needs To Be Completed For The PA Inheritance Tax?

Typically, the executor or administrator of the decedent’s estate will complete the inheritance tax return, PA Department of Revenue Form 1500, if the decedent was a Pennsylvania resident. This form must be completed within nine months of the date of death of the decedent – to avoid any interest charges or penalties. PA Department of Revenue Form 1737 is used if the decedent lived outside of Pennsylvania but owned property in Pennsylvania. In addition to filing the proper forms with the state, they are also followed with the County Register of Wills where the decedent resided or where the property of an out-of-state resident is located.

Are There Any Exemptions to Paying the Pennsylvania Inheritance Tax?

Pennsylvania has an exemption for family farms, provided specific criteria are amount. The criteria require that the transfer be to a family member, and the farm must be used as an agricultural business for seven years. Additional criteria may apply depending on the value of the farm and the number of employees.

Effective for estates of decedents passing away on or after September 6, 2022, personal property that is transferred from the estate of a serving member of the United States armed forces who has died as a result of an injury or illness received while on active duty, a reserve component or the National Guard, is exempt from inheritance tax.

Lastly, the beneficiaries of life insurance proceeds are also exempt from paying the Pennsylvania inheritance tax – whether the insurance is payable directly to a beneficiary or to the estate.

What Costs Can Be Deducted on the Pennsylvania Inheritance Tax Return?

The executor or administrator of the decedent’s estate can deduct certain expenses from the value of the assets. The tax is paid on the net amount, after deductions. Expenses that can be deducted include:

• The decedent’s debts, such as tax bills, mortgages, credit card bills, and medical bills – provided the bills are paid.
• Certain estate expenses, such as the executor’s fee, attorney fees for legal professionals who help the executor manage the estate, funeral and burial costs, and any necessary filing fees.

Who Can Help Me Navigate the Complexities of the Pennsylvania Inheritance Tax?

The Pennsylvania inheritance tax is complicated and affects just about every decedent’s estate. Working with an experienced estate attorney is the best way to ensure all tax obligations are met and the proper rates are applied. At Antanavage Farbiarz, our team compassionately guides families through the estate administration process, ensuring all obligations of the estate are met in a timely manner. Have questions? Feel free to reach out to our office at (610) 562- 2000 or fill out our online form to schedule a consultation with one of our experienced attorneys.