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Pennsylvania’s inheritance tax and your estate planning

On Behalf of | Oct 11, 2023 | Estate Planning & Probate

Pennsylvania is one of a handful of states with an inheritance tax. This is a tax on inherited assets. An inheritance tax is different from an estate tax. While there is a federal estate tax, Pennsylvania itself doesn’t have one. 

Estate taxes are paid by the estate, while inheritance taxes are paid by beneficiaries. If you’re preparing to put your estate plan in place, it’s important to know what kind of taxes your beneficiaries may have to pay.

Inheritance tax rates vary by relationship

Under Pennsylvania law, the amount of inheritance tax is based on the beneficiary’s relationship to the deceased. The rates are as follows:

  • Surviving spouse and children 21 and younger: 0%
  • Other direct descendants (such as adult children and grandchildren): 4.5% 
  • Siblings: 12%
  • Other heirs: 15% 

Charitable organizations and some other institutions are typically exempt from paying inheritance tax.

There are ways to help your loved ones avoid this tax

As you do your estate planning, you may want to consider ways to leave your assets to loved ones in ways that won’t require them to pay inheritance taxes on them. Gifting assets while you’re alive is one way. However, you want to keep in mind gift taxes. While Pennsylvania doesn’t have a gift tax, there is a federal gift tax on amounts over $17,000 for this year.

If your loved ones will need to deal with inheritance taxes, it’s a good idea to make sure they’re aware of the tax. It’s due within nine months after a person’s death.

Minimizing and even possibly eliminating taxes for your estate and your loved ones is just one reason why it’s crucial to have experienced legal guidance and possibly financial and tax guidance as you develop or modify your estate plan.