Pa Inheritance Taxes

– Intro

A major area of misinformation and misunderstandings in the estate law and estate planning areas are the taxes that are imposed upon one’s death in Pennsylvania.

Very simply, two death taxes can be imposed on the death of Pennsylvania residents – the:

Federal Estate Tax
Pennsylvania Inheritance Tax

However, and unlike the income tax, which is very descriptive in its title as it is imposed upon your income, the phrases Federal Estate Tax and Pa Inheritance Tax are misnomers in that may tend to belie the actual fact that these are taxes imposed by virtue of your death.

The issue of estate taxes or “death taxes,” which occur when a primary estate holder dies and passes wealth and property to the next generation, has become a widely debated and legislated area in recent years.

– Inheritance Tax

Pennsylvania assesses taxes on property passing to a person’s heirs at death. The Pa Inheritance Tax returns is due nine months after the date of death.

– Rates

The Pennsylvania Inheritance Tax is assessed on estate property and joint assets owned by a decedent at the time of death. The tax rate is determined by the relationship of the person receiving the property to the decedent. There is no tax on property passing to a husband or wife. The tax rates are as follows:

To spouses 0%
To children 4.5%
To siblings 12%
To anyone else 15%
To charities 0%

– Notes

Life insurance proceeds are exempt from Pennsylvania inheritance tax. So, too, are the benefits from many retirement plans, but you have to weave through technical rules to make sure it’s exempt. Unfortunately, it’s safe to say that the Department of Revenue says that an IRA is subject to inheritance tax if the decedent was over age 59½ at the time of death. Two other exemptions were recently created by Act 85 of 2012. These exemptions are effective for estates of those who died after June 30, 2012. For those estates, many farms will now be exempt from inheritance tax if they pass to so-called lineal descendants or siblings. Finally, Act 52 of 2013 added an exemption for the transfer of a “qualified family-owned business” for those dying after June 30, 2013. In general terms, to meet this exemption, the business must have fewer than 50 employees and a net book value of less than $5 million and it must pass to a spouse, lineal descendants (children, grandchildren, etc.), siblings, the lineal descendants of siblings, ancestors (parents, grandparents) and siblings of ancestors.

– Schedule A

Real Estate

Fill out Schedule A if the decedent held any real estate or a partial interest in real estate on the date of death. You will need to include an appraisal of the fair market value and county tax assessment. You will also need to include copies of deeds if the deceased owned only a portion of the property.

With the top federal estate tax rate at 40 percent, failure to plan can result in the federal government taking a very large bite out of the assets transferred to a person’s family. If the holdings are not liquid, the family may even be forced to sell assets (such as a family business) in order to pay a large tax bill, which is due within 9 months of death.

The federal transfer tax system includes the Estate Tax and Gift Tax. Each person has a lifetime exemption, or “unified credit,” which is an amount that he or she can pass free from federal taxes during life, or at death.

– Federal Estate Tax

Historically, the Federal Estate Tax has begun at a wealth threshold. If you possess less than the wealth threshold at your death, the federal estate tax will not be applicable.

If it is applicable, the tax is imposed on a percentage scale according to the amount of your wealth (i.e., potentially 47% of the value of your assets above the wealth threshold).

The current wealth threshold of the Federal Estate Tax has been changing drastically throughout the last decade. It has increased, disappeared, and reappeared in 2011.

In 2005, the threshold was $1,500,000.00; in 2006, 2007, and 2008, the threshold was $2,000,000.00; in 2009, the threshold was $3,500,000.00; and in 2010, the Federal Estate Tax was scheduled to be, and in fact was, eliminated.

However, and although the Federal Estate Tax was scheduled to return with a wealth threshold of just $1,000,000.00, in 2011, it did not. The Internal Revenue Service changed that law and “announced the 2015 estate and gift tax limits […] and the federal estate tax exemption rises to $5.43 million per person, and the annual gift exclusion amount stays at $14,000.” “IRS Announces 2015 Estate And Gift Tax Limits”

The federal estate tax exemption—that’s the amount an individual can leave to heirs without having to pay federal estate tax—will be $5.43 million in 2015, up from $5.34 million for 2014. That’s another $90,000 that can be passed on tax-free. The top federal estate tax rate is 40%.

https://www.whalenwillslaw.com/west-chester-pa-inheritance-taxation-lawyers/

West Chester Pa Estate Taxation Lawyers

west-chester-pa-estate-taxation-attorneys-lawyers

West Chester Pa Estate Taxation Lawyers – Intro

When an individual acts in a fiduciary capacity such as a Pa Executor of a Pa Last Will or a Pa Trustee of the financial assets of another person or entity, they have the responsibility of keeping accurate financial records.

Those records should show how money was spent, invested or distributed while under the fiduciary’s care and control. Proper accounting can bring to light the mismanagement or bad investment of funds should an issue arise with an interested party.

West Chester Pa Estate Taxation Lawyers – Interests Served

There can be a number of interested parties who may want to examine the financial records and approved fiduciary accountings. They are entitled to receive copies of all the materials such as profit and loss statements, expense reports and tax returns. You may request documentation if you are:

a beneficiary of an estate or trust
a principal of an agent acting on your behalf
a minor whose care is being administered through a third party fiduciary agent
the court who must evaluate financial matters in relation to a trust or estate

West Chester Pa Approved Fiduciary Accountings

Certain procedures must be followed when reports are prepared to explain how the assets in an estate or trust were managed. Approved fiduciary accountings require the separation of principal and interest. You can not commingle funds that are considered principal with those that are considered income.

Principal = original investment + capital gains – capital losses – expenses – distributions
Income = money generated from the investment or use of principal

The main reason for keeping principal and income in separate accounts is that the beneficiaries of income in a trust or estate may be different than the beneficiaries of the principal in the same estate or trust.

Fiduciary Tax Returns – Form 1041

A trust or an estate is considered a separate legal entity from an individual who may be a beneficiary of that trust or estate. Therefore, it is incumbent upon the fiduciary administering the estate or trust to file a federal tax return under certain conditions.

The IRS requires a trust to file a tax return if it has any taxable income or has gross income of at least $600, regardless of whether it is taxable or not. Estates must file Form 1041 if they have gross income of $600 or more. A fiduciary must also file a return if any of the beneficiaries of the estate or trust is a non-resident alien.

Form 1041 is similar to the 1040 return used by individuals. The form is designed so estates and trusts can report income, deductions, gains, losses and any other pertinent financial information. Before funds or assets can be distributed, any tax liabilities of the estate or trust must be satisfied.

Closing Out a Fiduciary Relationship

Once all of the assets of an estate or trust have been distributed or otherwise settled, it is customary that the fiduciary is released from further responsibility. That may be done by signing a release form through the court or an agreement with the beneficiaries of the estate or trust.

Dealing with estate taxation can be complex. Estate taxation attorney John B. Whalen, Jr., provides guidance to his clients when dealing with these complicated issues.

West Chester Pa Probate Guide

The West Chester Pa Attorneys Guide is the core of this website. It consists of the best, most important articles, posts, and pages on this website. Their focus is to provide the best and most complete information on a particular topic, rather than to sell my services.

John B. Whalen, Jr., JD., LL.M., is an AV Peer Review Rated Preeminent 5.0 and Avvo Rated 10.0 Superb (obtaining over 95 client reviews and peer endorsements) premier and prestigious Attorney and Counselor at Law. He is located at 696 Pont Reading Road Ardmore Pa 19003. He serves all surrounding counties, on all 7 days, from 9:00 AM to 10:00 PM, and on evenings, weekends, and holidays. He provides free initial consults all seven days, provides home visits, and provides flat fee structures. He can be reached by email at [email protected], and by telephone at 1-484-417-6244. He has amassed over 60 prestigious and premier professional awards and over 5000 client reviews and endorsements. Mr. Whalen has achieved the AV Peer Review Rated Preeminent award from Martindale, AV Peer Judicial Preeminent award, the Avvo Rated Superb 10.00 award, the Avvo Rated Top Lawyer award, the Clients’ Choice Award, and the Top One Percent (1%) award. He is the recipient of the Legum Magister Post-Doctorate Degree (LL.M.) in Taxation (from the Villanova University School of Law), a recipient of the American Jurisprudence Award in Wills, Trusts, and Estates (from the Widener University School of Law), and a recipient of the ABA-BNA Law Award for Academic Excellence (from the Widener University School of Law).