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We are often asked by our clients how their property will be taxed upon their deaths.
We are often asked by our clients how their property will be taxed upon their deaths. While we are not qualified to provide specific legal and tax advice, we wanted to share some of the basics of the Pennsylvania Inheritance Tax and the Federal Estate Tax.
Pennsylvania Inheritance Tax: this is a tax levied on the beneficiary’s right to receive your property. The PA inheritance tax is imposed as a percentage of the value of a decedent’s estate transferred to beneficiaries by will, heirs by intestacy (where there is no will) and transferees by operation of law (by trust). There is no minimum amount to the size of our estate to be subjected to the tax. The tax rate varies depending on the relationship of the beneficiary to the decedent. The rates for PA inheritance tax are as follows:
This tax is not imposed on the gross value of your estate. Your executor will be able to deduct any outstanding debts you owed at the time of your death, your funeral expenses and any other estate-related expenses. Any property passing to a surviving spouse is exempt from the tax.
There are some notable inheritance tax exemptions written into the law: life insurance policies proceeds on the decedent’s life are not taxed as are the benefits of many retirement plans. IRA accounts are subjected to the tax if the decedent was over age 59 ½ at the time of death.
Federal Transfer Taxes: The federal government imposes a set of taxes (estate, gift, and generation-skipping) on the transfer of wealth. Generally, there is no federal tax on what you leave to your spouse or charity. And there is no tax on the first $5.43 million (in 2015) that passes to your other heirs.
If you do have an estate of more than $5.43 million, you need to plan to reduce federal transfer taxes. The tax rates are high – the federal estate tax is 40% on the excess – but that tax can be greatly reduced or eliminated by good advanced estate planning.
For most seniors, it’s the cost of long term care rather than death taxes that should be the focus of advance planning. Similar to most tax matters; proper planning can save taxes and ensure that you pass along the true value of your estate according to your wishes.
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Access your account information, Blue Bell quarterly reports and commentary as well as Schwab statements and tax documents.
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