Can I Split My Inheritance with My Sibling?

Pennsylvania is one of the few states that still have inheritance taxes in place. This means that many people try to plan ahead to make sure that the estate will not have to pay a massive amount of tax when someone passes away. If you have a sibling, you might be wondering if you are allowed to split your inheritance with your sibling to help with the tax burden. The answer to this question depends on a number of variables that are related to the way that Pennsylvania inheritance taxes are assessed.

How Does Inheritance Law Work in Pennsylvania?

In PA, you will be charged a different amount of inheritance tax depending on how closely related you were to the person who died. The tax rate for PA inheritance tax is 4.5% for direct descendants who are lineal heirs. Siblings are taxed at 12% while other kinds of heirs are charged 15% tax. Husbands and wives are exempt from this tax. Property inheritance taxes when inheriting from a spouse or from a child that is 21 or younger from a parent are also not taxed.

Property, bank accounts, assets, and retirement accounts are all taxed using this set of percentages. This is why estate planning is so commonly used to help avoid this kind of tax when someone dies. Trusts are also commonly used to prevent the charges related to inheritance tax. Non-residents of PA are still charged tax on the inheritance of a property that is located in Pennsylvania as well.

Jointly Owned Inheritance

One of the best ways to reduce the tax burden associated with inheritance tax is to make someone like a sibling the joint owner of a property. This must be done enough in advance that the person has been in residence on the property for a set amount of time. Once this time has elapsed, the property is considered half theirs. This is one way to split the inheritance with a sibling and avoid some of the tax burden associated with inheritance tax laws.

This is really only beneficial with relation to property that is going to continue to be lived in after someone has died, or you could set up a property this way to prevent its taxation prior to a later sale. This will not help with the inheritance tax situation for other assets.

What Are Other Ways to Share My Inheritance With my Sibling?

While you could split up your assets with your sibling in advance or you could try to make sure that you cut back on the amount of tax that is assessed related to property, you should consider a couple of other methods of passing on your assets to your sibling. You can give your sibling outright gifts of various items to help to prevent them from being taxed upon your death. You can also set up a trust. Trusts are one of the best ways to prevent and manage the burden of inheritance tax from being crippling after you die.

Setting up a trust with your sibling will also make it unnecessary to have a will. This is probably the best bet for the management of your estate after your death no matter what size it happens to be. There are so many variables that go into the taxation process related to inheritance in the state of Pennsylvania that a trust is often the best way to prevent issues with your assets once you have passed away. Remember that you will not be able to prevent the taxation of property that a non-resident takes possession of after your death, but you can cut back on the amount of inheritance tax that will be assessed for other items.

Inheritance Planning is Critical

As you can see, inheritance planning is critical in the state of Pennsylvania. When you do not have an expert estate planner working on your side, you can end up costing your family and loved ones lots of money in tax when you die. Being sure that you have set up all the right protections for your assets before your death can make it possible for your sibling or another loved one to benefit from having access to your assets after your death without them becoming a financial burden.

At Antanavage Farbiarz, we are experts at estate planning and our lawyers can explain all aspects of estate planning including making donations through wills, trusts, and gifts. To discuss your will as well as your estate planning concerns, call us at (610) 562-2000 or use our contact form to schedule an appointment.