Minimizing Pennsylvania Inheritance Tax: A Short Summary
How can you minimize Pennsylvania inheritance tax?
This article discusses practical methods to minimize or avoid PA inheritance tax while maintaining Pennsylvania residency.
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Pennsylvania Inheritance Tax Rates:
The PA inheritance tax rate is 0% for property passed to a surviving spouse or a child under age 21
The PA inheritance tax rate is 4.5% for property passed to direct descendants and lineal heirs
The PA inheritance tax rate is 12% for property passed to siblings
The PA inheritance tax rate is 15% for property passed to other heirs (excluding charities and organizations that are exempt from PA inheritance tax)
Data Source: revenue.pa.gov
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Who Bears the Burden of PA Inheritance Tax?
Pennsylvania inheritance tax is due when a PA resident who owns property dies, or when an out-of-state resident dies that had property located in PA.
An inheritance tax return must be filed within 9 months of the date of death.
The person named as personal representative in the will or as the administrator of the estate is required to file the inheritance tax return.
The inheritance tax return is generally filed with the Register of Wills in the county where the PA resident died or owned property.
Either the recipients of the property or the estate pay the PA inheritance tax depending on how instructions were written into the will.
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Key Methods to Minimize Pennsylvania Inheritance Tax:
#1 - Gifting
Gifting a powerful tool for minimizing PA inheritance tax.
Assets gifted more than 12 months prior to death are excluded from PA inheritance tax.
Whether it's directed towards individuals, charities, or irrevocable trusts, gifting is a viable and relatively simple strategy to minimize PA inheritance tax.
Learn how to maximize the benefits, considering the 12-month exclusion rule and exploring options like the annual gift tax exclusion of $18,000 in 2024.
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#2 - Real Property Ownership in Other States
Buying real property in a state without estate or inheritance tax can reduce PA inheritance tax.
Real property and tangible personal property located in Pennsylvania at the time of a PA resident’s death is subject to PA inheritance tax.
Real property (such as real estate) and tangible personal property located outside of Pennsylvania is not subject to PA inheritance tax.
Clearly, avoiding PA inheritance tax isn't the only factor to consider when making a decision to buy real property in another state.
Understand the nuances involved, such as potential probate implications and the considerations of state-level estate or inheritance taxes.
Curious about minimizing PA inheritance tax through buying real property in states without estate or inheritance tax? Click here to connect with our team.
#3 - Agricultural Property Exemption
Effective for those who die after June 30, 2012, agricultural property and farmland is excluded from PA inheritance tax in certain cases.
The qualifying property must be transferred to members of the same family, it must have operated in the agriculture business at the time of the owner’s death, it must remain in the agriculture business for at least 7 years following the owner’s death, and it must produce at least $2,000 of annual revenue from the business of agriculture.
While this technique won’t be relevant in the majority of situations, under conditions where a family was already involved in or intended to get involved in the agriculture business anyway, this technique can also be utilized to minimize or avoid Pennsylvania inheritance taxes.
Considering agricultural property strategies to minimize PA inheritance tax? Click here to discuss your options.
Your Next Steps:
Ready to chart your course towards tax-efficient PA inheritance tax planning as part of well-organized, comprehensive retirement planning?
Our team, consisting of comprehensive retirement planning specialists and estate attorneys, is prepared to work collaboratively to tailor a balanced approach to meet your long-term estate planning objectives while ensuring financial flexibility for a fulfilling retirement.
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This article is for informational purposes only and should not be considered as tax or legal advice. Advice is provided after entering into an Advisory Agreement with the Advisor. Refer to other disclosures here