INDUSTRY INSIGHT
F
ew people are anxious to pay taxes;
even after their deaths. While recent
amendments to the federal estate and
gift tax statute remove most of us from
that obligation, state inheritance taxes are
another matter.
Not every state imposes an inheritance
tax, but Pennsylvania does; and it is difficult
to safely avoid. There is no minimum-sized
estate for imposition of the tax.
The tax is actually imposed upon the
transfers of assets that result from an
individual’s death. Thus, jointly held assets
and other “non-probate” transfers, such as
IRAs and 401(k)s, can be taxable.
Life insurance proceeds are not subject to
inheritance tax. Transfers of assets between
spouses also do not result in a tax obligation
(though technically taxable, the rate of tax is
0%). Bequests to charities are not taxable.
The tax rate for transfers to “lineals”
(parents, grandparents, children, etc.) is
currently 4.5%. For siblings it is 12%, and all
others, 15%.
In the case of jointly held assets, the
value to which the tax rate is applied is the
proportionate share of the particular asset
that was owned by the decedent (with two
“joint tenants” the tax is on half of the value;
with three, it is one-third, etc.).
INHERITANCE TAXES
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However, if the asset was acquired (or
made joint) less than one year prior to the
first death, the full value is subject to tax.
PLEASE NOTE: The tax on the transfer of
jointly held assets has no bearing on who
originally owned or acquired the asset. This
can be critically important and result in
quite an emotional and financial shock to
an elderly parent who “adds” the name of an
adult child to a bank account or to real estate
with the intention
of avoiding
probate and/or
saving inheritance
tax, or just for
convenience during
his or her lifetime.
This is frequently
done assuming
that the parent will
predecease the
child. Of course this
does not always
happen, and if
the child does die
before the parent,
“Mom” or “Dad”
winds up paying
inheritance tax
on his or her own
asset(s).
It is beyond the scope of this article
to provide specific planning advice; an
understanding of the basic elements of the
inheritance tax statute must precede this
aspect of your estate planning.
Be sure to inform your attorney about
not only what you own, but how everything
is titled; it may be advisable to make some
changes.
This Industry Insight was written by Betty Dillon.
Dillon received her law degree from the University of
Pittsburgh. She is a member of the Pennsylvania Bar
Association and the Allegheny County Bar Association,
where she is a member of the Family Law Section, the
Probate and Trust Section and the Elder Law Committee.
For further information, call 412.835.0933 or go to
www.bettydillonlaw.com online.
Bethel Park | Summer 2017 | icmags.com 15