A Brief Guide to the Pa. Inheritance Tax


The Pennsylvania Inheritance Tax has been the subject of much discussion and controversy over the years, at least among my clients and potential clients. Since there have been so many questions requiring response I thought it would be helpful to jot down some of the basic concepts and provide a brief guide to navigate the system. By the way, you should never rely merely on a summary to answer all the questions you might have. Here it is.

The Inheritance Tax follows the jurisdiction of the decedent, not the beneficiary. For Pennsylvania’s purposes, where the beneficiary of an estate resides is irrelevant. The important issue is where the decedent lived or, more specifically, where he or she considered “domicile” at the time of passing. If he/she claimed domicile in Pennsylvania both the real estate in Pennsylvania and the personal property are taxed for Pa. Inheritance Tax purposes. It is possible for a non-resident decedent’s estate to be taxed in Pennsylvania at least in part. This would be when the non-resident owns real estate in Pennsylvania.

Non-Probate Property is Still Taxed Unless Otherwise Excluded. Some taxpayers believe that property contained in a revocable living trust or property titled TOD (transfer on death) or POD (payable on death) is not taxed for Pa. Inheritance Tax purposes. This is not true. POD, TOD, and assets in a revocable living trust are all fully taxable for the Pennsylvania Inheritance Tax. Also, jointly titled assets are taxable at the proportionate share of the value (unless made joint within one year of the decedent’s death in which case they could be taxable in full).

Inheritance tax is different from income tax. Some beneficiaries worry that their inheritance will be subject to income tax. Their inheritance is subject to inheritance tax not income tax and very often the inheritance tax has been paid from the estate before the inheritance is received. Beneficiaries do not need to claim the inheritance on their income tax return.

Life insurance proceeds are not subject to inheritance tax. If, for instance, you are the beneficiary of a $100,000 basic life insurance policy the proceeds are not subject to Pa. Inheritance Tax (or income tax).

Out-Of-State Real Estate Is Not Taxed for Pa. Inheritance Tax purposes. Ironically, if the decedent owned a property in Stone Harbor, New Jersey or anywhere outside Pennsylvania, it is not taxed for Pa. Inheritance Tax purposes. On the other hand, if she owned a house in the Poconos, Pennsylvania, it is taxed for Pa. Inheritance Tax purposes.

Inheritance Tax Is Different From Estate Tax. Several states have an estate tax. This is different from an inheritance tax. Estate tax schedules typically begin for estates over a given amount – often over $1 million or more. Pennsylvania Inheritance Tax taxes from dollar one.

Pennsylvania Inheritance Tax Rates are based on relationship. Spouses are “taxed” at 0%. Children, grandchildren and parents of decedents are taxed at 4.5%. Siblings at 12% and all others at 15%. It makes a huge difference to get married.

Even though spouses are “taxed” at 0% rate, it is sometimes necessary to file an estate and submit a Pennsylvania Inheritance Tax return. It might seem ironic to tell the government you owe nothing when it should have seemed obvious from the mere fact you are claiming as spouse. In most cases we do not need to file an estate where the spouse is the sole beneficiary but occasionally it happens that we do. This occurs often when the decedent spouse owned an account or other property titled only in his or her name. If it were jointly titled it would have passed to the survivor automatically.

If you were co-owner of one or more accounts with a decedent you might receive a notice stating you owe a given amount. If so, this should be scrutinized to determine whether the information is correct. On the death of a joint owner of a bank account the bank might release information to the government regarding joint ownership. Often this information is incorrect. You might have already filed an Inheritance Tax Return and paid the tax previously or you might receive the notice at a 15% rate when you are a child of the decedent and should have been taxed at 4.5%. If you have questions get advice. Typically these are sent to joint owners of bank accounts but not brokerage or investment accounts.

About the Author Janet Colliton

Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.

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Leave a Comment:

Adam meltz says August 19, 2022

Have questions about inherent tax and your fees to prepare it.

Georgina Mckenzy says December 12, 2022

I like when you mention in your post that if a property owner gave away a large sum of money to a family member, they would have to live for seven years after you gave the gift for it to fall outside of your estate for IHT purposes. My grandfather left a significant property to his children more than seven years before he passed away. They plan to hire a consultant to help them with the huge property tax on the titles they are getting from their father. As you mentioned earlier, these gifts are known as potentially exempt transfers.

Beverly Wik says June 4, 2023

Your guide says that out-of-state real estate is not subject to PA inheritance tax. Are out-of-state tangibles located long term in another state, such as cars and artwork in a FL home
or a beach house in DE subject to PA inheritance tax?

Tom Schwalenstocker says July 30, 2023

Thanks Janet! Yours is the only clear explanation that I’ve found about whether or not I owed inheritance tax on my out-of-state father’s bequest to me.

Judy Toomey says August 23, 2023

I have a question about inheritance taxes and real estate. I’m looking at buying a property in the repository sale. The owner appears to have died several years ago, but his name is still on the deed, which suggests that his estate was probably not probated and inheritance taxes weren’t paid before the county took the property for back taxes. If I buy the property in the repository sale, will the state come after me for the inheritance tax?

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