One of the main goals of estate planning is to utilize your estate to provide for your family. When forming an estate plan, you should be aware of any tax consequences or other laws that could affect a conveyance to your family. Failing to understand the consequences of transferring property to family members could invite unwanted tax issues. If you or a family member wants to give property to another family member, you should consult with an experienced Pennsylvania estate planning lawyer. At Herr Potts and Potts, our lawyers are committed to helping you develop an estate plan that can provide for your family effectively. Our lawyers are here to explain when you can give property to family members in Pennsylvania.
How to Make a Lifetime Gift to Your Family
There are many items that you can transfer to a family member that can be considered a gift, whether its cash, assets, or property. Gifts that are made during the grantor’s life are also known as lifetime gifts. A gift must be given out of disinterest or pure generosity. This means to qualify as a gift; the property must be given freely or in exchange for goods or services that cost significantly less than the value of the gift.
When making a gift to a family member, you should be aware that are some types of gifts that are not subject to the gift tax. For example, any gift that you give to a spouse will not be taxable in most circumstances. Additionally, if you gift property to a family member and that property does not exceed the annual exclusion amount for the calendar year, the gift will not trigger tax consequences.
Annual exclusion laws set a cap on the total value of a gift that a grantor can give to an individual or organization. In 2018, the annual exclusion limit for a gift is $15,000. This means that if you want to give property to multiple family members, you will have a $15,000 gift limit per family member.
If a married couple decides they want to gift property to another family member jointly, they have the option of splitting the cost of the gift. This is referred to as gift splitting. Gift splitting allows a couple to divide the annual exclusion amount for gifts they give. For example, if you and your spouse split a gift that is $30,000, each spouse can contribute $15,000 to avoid exceeding the annual exclusion amount. Whether the annual exclusion amount was exceeded or not, both spouses will have to file a gift tax return for splitting a gift.
Additionally, gifting property to family members, like real estate, may also trigger the capital gains tax if your family member decides to sell the property. If you need to know more about lifetime gift taxes you should speak with an experienced Pennsylvania tax lawyer.
When Do Family Members Have to Pay an Inheritance Tax
Pennsylvania is one of seven states that uphold inheritance tax laws. Under Pennsylvania law, inheritance taxes are collected on property that is conveyed to beneficiaries by a decedent’s will, by Pennsylvania’s intestacy laws, and by transfers made to a beneficiary.
If you give property to your family members in Pennsylvania, the relationship you have with the recipient will determine their inheritance tax rate. For example, if you transfer property to your surviving spouse or to your child that was under the age of 21 when you passed away, their inheritance tax rate will be zero. The following list details the remaining Pennsylvania inheritance tax rates:
- 5% on transfers to direct descendants and lineal heirs (children, grandchildren, etc.,)
- 12% for property transferred to siblings
- 15% for transfers to unrelated individuals
Family members that are subject to the inheritance tax should know that there is a deadline to pay the tax. Recipients of property have nine months from the date of the grantor’s death to pay the inheritance tax. If the beneficiary pays the tax within three months of the decedent’s death, they can receive a five percent discount on the payment.
It is also important to note that certain agricultural properties are exempt from Pennsylvania’s inheritance tax, depending on who the property is transferred to.
West Chester Elder Law Attorneys Can Help You Transfer Property to Your Family Members
If you or a family member need assistance transferring property to another family member, you should speak with an experienced West Chester elder law attorney. The dedicated attorneys at Herr Potts and Potts can help you manage tax liabilities when transferring property to your family members. To schedule a confidential consultation, call us at (610) 254-0114 or reach us online.