Pennsylvania Inheritance Tax is 4.5% on property passing to linear descendants of the decedent which include children, grandchildren, and parents. Pennsylvania Inheritance Tax is 12% on property passing to siblings and 15% to everyone else. Joint accounts which were made joint more than one year before death are taxed at one half of value. If the Joint Account was made within one year of death it is fully taxable. Life insurance is exempt from PA inheritance tax and federal income tax.

Probate property includes assets titled in the decedents name alone. Non-probate property includes jointly owned assets and assets with a named beneficiary. Although the estate only pays probate fees on probate assets, the estate must pay inheritance tax on all assets the decedent owned.

The estate is required to file a Pennsylvania inheritance tax return and report the value of all taxable assets as of the date of death, including real estate, bank accounts, brokerage accounts, traditional IRA’s, annuities, “In trust for” accounts, automobiles, trailers, boats and all transfers within a year of death.

The estate, not the beneficiary, pays the inheritance tax on the assets, but the beneficiary pays the income tax on any tax deferred accounts such as traditional IRA’s or annuity’s which they inherit.

There is a 5% discount on inheritance tax for any payments made within three months after death, which reduces the effective rate on gifts to 4.275%. No forms, or final decisions as to value, need be made in order to get the discount. All that is needed is a check, payable to REGISTER OF WILLS, AGENT, which we send in with a cover letter identifying the estate and the rate. Inheritance tax returns are filed using Form REV-1500, and must be filed within nine months of death. However, there is no difficulty in requesting and receiving a six month extension. If real estate is listed for sale but not sold within 15 months of the date of death the inheritance tax return must be filed using the fair market value of the property.

Once the REV-1500 is received by the Register of Wills it takes the Pennsylvania Department of Revenue three to five months to process the return and issue a refund or a bill for any balance due. No Inventory of furniture and personal effects is required under the Pennsylvania Inheritance tax laws.

A federal estate tax return (form 706) is required only if the estate exceeds $5.25 million dollars for decedents dying in 2013. That includes life insurance, if any (with certain minor exceptions), and includes joint accounts at full value. Federal returns include many more formalities, in terms of appraisals and related items.

Contact Gregory J. Spadea of Spadea & Associates, LLC at 610-521-0604 if you need help administering an estate or find yourself being appointed as an Executor.