In Pennsylvania, if you were named as a beneficiary in a person’s will or by intestacy, you may have to pay taxes on property that you receive. The relationship you have with the deceased individual (decedent) will dictate how high or low the inheritance tax rate will be. However, under certain circumstances, you may be exempt from paying an inheritance tax. If you or a family member has received an inheritance and are concerned about the inheritance tax, you should consult with an experienced Pennsylvania tax lawyer today. The dedicated lawyers at Herr Potts and Potts are prepared to help you handle any Pennsylvania inheritance tax issues. Our lawyers are here to explain when you need to pay taxes on inheritance in Pennsylvania.
How Does the Inheritance Tax Work in Pennsylvania?
Pennsylvania is one of seven states that collects an inheritance tax based off of the value of a decedent’s estate that is conveyed to a beneficiary. Therefore, the value of the assets you receive and your relationship to the decedent will determine the percentage of your tax liability.
Inheritance taxes are tied to the state where the decedent resided and passed away. Inheritance taxes are not paid according to where the beneficiary lives, and if an out-of-state relative left you an inheritance, you would not have to pay taxes on it unless the state they resided in had inheritance taxes. However, if the decedent left you property that is located in Pennsylvania, you will owe inheritances taxes for the property.
Pennsylvania’s inheritance tax applies to all real and tangible personal property located within Pennsylvania when decedent passed away. Examples of property that is subject to the inheritance tax include:
Intangible personal property like stocks, bonds, bank accounts, IRAs, 401 (k) plans, and many other items are taxable regardless of where they are located.
As mentioned above, the inheritance tax rate will be determined based on the beneficiary’s relationship with the decedent. In Pennsylvania, spouses and the decedent’s children that are under the age of 21 do not have to pay the inheritance tax. However, other family members and non-related beneficiaries must pay inheritance taxes on the following scale:
- 5% for transfers of property to lineal descendants (children, grandchildren, etc.,)
- 12% for property given to siblings
- 15% for transfers made to distant relatives (aunt, cousin, niece) and unrelated beneficiaries
Certain charitable organizations, government entities, and other institutions may be exempt from Pennsylvania’s inheritance tax. If you need to know more about Pennsylvania’s inheritance tax, you should speak with an experienced Delaware County elder law lawyer.
When Should I File My Inheritance Tax Return?
If they are subject to Pennsylvania’s inheritance tax rate, a beneficiary must file an inheritance tax return within nine months of the date of decedent’s death. In some cases, the decedent may choose a personal representative or executor to handle the administration of the estate. If an executor is not chosen, Pennsylvania’s Register of Wills may appoint one to handle the estate administration and probate. If an individual is chosen or appointed to the role of executor, they will be responsible for filing the inheritance tax return.
A beneficiary may be able to secure a discount on their inheritance tax rate. The nine-month deadline for paying the inheritance tax begins once the decedent passes away. Under Pennsylvania law, if a beneficiary pays the inheritance tax within three months of the decedent’s death, they may receive a five percent discount on the tax paid or the tax due, whichever is less.
If the decedent resided in Pennsylvania at the time of their death, the inheritance tax return must be filed in the same county the decedent passed away in. If the decedent was not a resident of Pennsylvania when they passed away, the inheritance tax return could be filed with a Register of Wills that issues Letters of Administration or Letters Testamentary. The inheritance return can also be filed with Pennsylvania’s Department of Revenue, Bureau of Individual Taxes.
Having knowledge of Pennsylvania’s inheritance tax can help you create a successful estate plan to provide for your loved ones. For beneficiaries, understanding Pennsylvania’s inheritance laws will help you make an appropriate plan to handle any tax liabilities you may have.
West Chester Estate Planning Attorneys Can Help You File an Inheritance Tax Return
If you or a family member needs assistance filing a Pennsylvania inheritance tax return, you should speak with an experienced West Chester estate planning attorney today. At Herr Potts and Potts, our attorneys are prepared to help you create an estate plan that meets all of your unique goals. To schedule a confidential consultation for your case, call us at (610) 254-0114 or reach us online.