Losing a parent is already hard enough, but what if they have left an estate that is burdened by unpaid back taxes? This can be very overwhelming and many people who find out there is a tax burden that is owed on their parent’s estate are very concerned. The short answer is that yes, you are responsible for your parent’s back taxes. The more complex answer is that there are also inheritance tax laws that need to be followed in Pennsylvania that can complicate matters further.
What is the Pennsylvania Inheritance tax?
Pennsylvania is one of the six states that makes people pay inheritance tax when they inherit. If you are a spouse, you will not pay any inheritance tax, but if you are a more distant relation, you could pay as much as 15% tax on all the property, retirement funds, bank accounts, and other assets that the decedent has left to you. This can be a staggering amount of tax depending on the size of the estate. It’s no wonder that people in PA are concerned when they find out that their parents also owed back taxes they did not pay.
In Pennsylvania, the decedent’s estate, or the beneficiary of a non-probate asset, will be charged the inheritance tax. You might find that this amount cannot be satisfied with the remainder of the estate, in which case, you should make sure that you secure a skilled lawyer to help you navigate the process of dealing with the remaining tax burden.
There are some instances where estate planning might have prevented tax from being assessed for your inheritance. These situations include joint ownership which can lower the tax burden to half, or a trust being in place. Your loved one might also have given items to you as outright gifts. This does not mean that you will not have to pay the back tax debt that is owed on your parent’s estate, however. You might still have to use the proceeds of your inheritance to pay back all of your parent’s debts in full.
How to Handle the Debts of a Parent Who Has Passed Away
If you have found out that your parent owed various debts when they died, you will need to reach out to the creditors directly and see if you can make a settlement against the debt. This can sometimes reduce the amount of money that is owed for the debt by a percentage. Probate can slow down your access to the accounts in question, so you need to be aware that you will have to pay this amount out of your own pocket if you have not gotten access to the accounts and other assets of the estate as of yet. This is still a good idea to attend to debts that can be handled easily right away.
When there is no trust or will in place, probate can go on for some time and all of the debts and other monies owed in tax can be tied up in the probate process. When a trust is in place, you will have access to the funds that you need to deal with debts associated with the estate. Tax debts are more complicated to handle since they are not owed to a unique creditor that you can just call and make a settlement with. Securing a skilled estate lawyer can help you to navigate this process.
Your estate lawyer can help you to seek settlements, repayment plans, and other solutions that will help you to pay back your parent’s debts so you can close out the estate. This process can be stressful but having legal support can make all the difference in the world as you navigate the repayment process. If your family member died unexpectedly without a will in place, you will want to be sure that you get a lawyer right away to help with the process.
At Antanavage Farbiarz, we take pride in offering expert estate planning services of various kinds for your needs. Our team of Lawyers can explain all aspects of the estate planning process and work with you on various kinds of estate planning. We can also offer expert guidance on making donations through wills, trusts, gifts, and other methods as well. If you are ready to discuss your will and estate planning concerns, call us at (610) 562-2000 or use our contact form to schedule an appointment.