The Pennsylvania inheritance tax rates depend on how the heir is related to the decedent. It can range from 0-15% from surviving spouse to an unrelated heir.
The effective tax rate for the Pennsylvania Inheritance Tax rate is 0% for spouses, 4.5% for lineal heirs (children, grandchildren, direct descendants, lineal descendants), 12% for siblings of the deceased, and 15% for any other heirs (this does not include charitable organizations, government entities exempt from tax, or exempt institutions).
If spouses own property together that property is exempt from inheritance tax. If the property is only in the name of the decedent the tax rate is 0%. If a child of the age 21 or younger transfers a property to a parent through inheritance that also has a tax rate of 0%.
The inheritance tax that is due to the Pennsylvania government has a due date of exactly nine months after the date of death. The person that has to collect and pay the inheritance tax is the executor of the will. If the will doesn’t exist, it is whoever was appointed as administrator by the register of wills. Now if there is no administrator or executor, that means that the persons receiving the property have the responsibility of filing a tax return and paying the owed taxes thereon.
If the deceased is a resident of Pennsylvania, it is any assets owned by them. This can be broken down into two categories.
First is assets that are physically located in the state at the time of death. This is all real property and tangible personal property. This includes things like jewelry, real estate, cars, furniture, cash, etc.
Second is all intangible property of the deceased resident. These are things like bonds, bank accounts, stocks, retirement accounts, life insurance proceeds, etc. These assets it doesn’t matter their location at the time of the decedent’s death.
Let’s say someone passes away in Pennsylvania but they are not a resident. What happens? Any real property and tangible personal property located in Pennsylvania at the time of death is subject to be taxed.
If the decedent had any jointly owned property (outside of a married couple), that fractional interest is taxable by inheritance tax as well. That means that even if the decedent was added to the property as a matter of convenience to the joint accounts they are still taxable. If the joint property was created within a year of their death, the entire value of the property is subject to tax payment. The percent rate for the joint property becomes very complex, so seeking legal advice is recommended to determine the tax due.
In Pennsylvania inheritance tax is paid by the executor of the will on behalf of the estate. If there isn’t a will in place then an administrator can be assigned by the register of wills only after a petition has been submitted.
When there is no will, and there is no administrator selected the inheritance tax is paid by each individual heir on the portion of the estate that they receive. If you are an heir to an estate in Pennsylvania but do not reside in the state you are still subject to the inheritance tax. Depending on your relationship to the decedent you can owe anywhere from 0%-15% of your inheritance in taxes. The taxes must be paid by 9 months after the decedent passes away.
There is no federal inheritance tax. There is an estate tax, but that is separate and dealt with by the estate and not the heirs to an inheritance. The estate tax is also referred to as "death taxes".
The federal estate tax for the 2022 tax year starts at $12.06 million. That means that an estate that has a total value of under $12.06 million will not need to pay federal estate taxes. On the other hand, that means that any money in your estate over $12.06 million will be subject to being taxed.
This tax exemption for federal estate tax works as well for married couples. If a married couple has planned their estate correctly, they can have $24.12 million of the exemption between the two of them after the original spouse and the surviving spouse pass away. Once an estate has surpassed that value, the maximum taxable rate is 40%.
The executor of the will must file a PA inheritance tax return within nine months of the date of death of the deceased. If there is no will, then there can be an administrator selected by the register of wills. That administrator would then be responsible to file the inheritance tax return on behalf of the estate to pay the inheritance taxes.
Now there are cases where the will was never finished, and there is no administrator of the will. In those cases, each and every heir of the estate is responsible for filing their own separate Pennsylvania inheritance tax return to the Pennsylvania Department of Revenue. They can expect an inheritance tax rate anywhere from 0%-15%.
There are only six states left in the United States that still have an inheritance tax, and Pennsylvania is one of them. Because of this, without a doubt, for Pennsylvania residents, estate planning should be a part of your plans for your final years. You should seek legal advice and create the best estate plan for you and your descendants. That could be an irrevocable trust, deciding estate administration, or picking a personal representative. The most important thing is that you are in the know, and are happy with what your plan is.