INDUSTRY INSIGHT
YOUR FINANCES
SPONSORED CONTENT
BETTER THE
DEVIL YOU
KNOW…
R
ecently, a longtime client and friend sent me an email
asking my opinion on an article pertaining to the
Pennsylvania state inheritance tax. The article began
by posing the provocative question, “Do I really want to
die in Pennsylvania?” The article suggested you don’t want to die
in Pennsylvania because of the Pennsylvania state inheritance
tax. (Of course, I for one am not real excited about dying
anywhere much less Pennsylvania.)
That said, when we die as a permanent resident in
Pennsylvania our assets may be subject to the Pennsylvania state
inheritance tax. All real estate and personal property located
in Pennsylvania at the time of a decedent’s death is taxable. All
intangible property owned by the decedent, no matter where
located, is taxable.
The tax rates are as follows:
• 0% on transfers to a surviving spouse or to a parent from a
child age 21 or younger.
• 4.5% on transfers to direct descendants and lineal heirs.
• 12% on transfers to siblings and 15% on transfers to
any other heir except charitable organizations, exempt
institutions, and government entities.
Here is a simple example:
A married couple with children in Peters Township owns a
home, IRAs, bank accounts, and investments totaling $1 million.
When they both pass away, the children (and/or estate) will owe
about $45,000 to the state of Pennsylvania less deductions for
various qualifying expenses.
No one wants to harness their heirs with taxes and expenses,
but many are not prepared to move to another state simply
to avoid state inheritance tax In Pennsylvania. Florida is an
attractive state if you want to escape the cold Pennsylvania
winter months, and there is no state inheritance tax, although
Florida may not be right for everyone. Other states may offer a
warmer climate and more frequent sunshine, but some of them
also have various state taxes to consider.
For example, a few years ago, we had a client who changed
residence from Washington County to Maryland. Upon
retirement, she and her husband established permanent
residency in their house in Deep Creek. We were not informed
of the change and viewed the home in Deep Creek as a vacation
home. To our surprise and their children, they were now subject
to state inheritance tax (worse than Pennsylvania at the time) in
Maryland since their Deep Creek property was considered their
primary residence.
We also have a number of clients who have moved to North
Carolina. In all cases the relocations were not tax motivated,
but we were disappointed to discover that North Carolina state
income tax applies to distributions from IRAs.
In Pennsylvania, when you contribute to a 401(k) plan your
contribution is net of Pennsylvania state income tax currently
3.1%. By moving to North Carolina and withdrawing from that
same IRA, the distributions are then subject to a 5% state income
tax in North Carolina resulting in what might be considered a
double taxation - taxed both in Pennsylvania and North Carolina.
These North Carolina taxes alone should not dissuade
someone from moving to North Carolina. It’s a beautiful state,
but it’s another example of how states raise revenues through
various taxes. Tax laws continue to change from state to state as
well as in the federal government.
At H Financial, we have clients who live in more than 30 states,
all relationships we developed right here in Southwestern
Pennsylvania. We live in a mobile society. Executives are
transferred, job opportunities arise, and clients who are retired
or financially independent choose to move to other states for a
variety of reasons such as moving close to family or just tired of
the long Pennsylvania winters.
Taxes may be a consideration when one moves but should
probably not be the primary driver of those decisions. Better
the Devil you know versus the Devil you don’t know. If you are
planning to move to another state it is a good idea to do some
research—look at taxes and other factors that might impact you
financially. It may not be the determining factor, but it will avoid
any unpleasant surprises later. We, at H Financial, have a great
deal of experience with these issues. If you should need help,
please call our office and request an introductory meeting.
This Industry Insight was written by Garrett S. Hoge.
Garrett S. Hoge, CFP®, ChFC®, MS of H Financial
Management, is a private wealth manager based
in Southpointe serving the ever-changing financial
needs of his clients. Please contact Garrett at H
Financial Management, 400 Southpointe Blvd.,
#420, Canonsburg, PA 15317, Phone: 724.745.9406,
Email: [email protected], or via the Web:
www.hfinancialmanagement.com.
Securities offered through Triad Advisors, LLC, Member
FINRA/SIPC • Advisory Services offered through H
Financial Management.
H Financial Management is not affiliated with Triad
Advisors, LLC.
PETERS TOWNSHIP
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