Ask the Attorney: What's Up With Inheritance Taxes?
Q: I know that I have to pay inheritance taxes on property that I received from a parent’s will, but I have heard that some gifts that were made before a person dies are still subject to inheritance tax. Is this true? What are the inheritance tax rates?
Under Pennsylvania law, all transfers of property that happen as a result of the death of another person (whom lawyers call the decedent) are subject to inheritance tax, with few exceptions.
This includes situations where there is a will that specifically identifies a number of beneficiaries who should receive the decedent’s property as well as situations where there is no will, and the property must be divided according to state law.
Moreover, even if the decedent transfers certain property before his death, inheritance tax might still apply to thevalue of that property.
The most common reason for this is when someone dies within one year of gifting his property to another person. Under Pennsylvania law, the person who received that property now owes inheritance tax on its total value.
Pennsylvania law essentially deems that such a gift, made within one year of the decedent’s death, was “made in contemplation of death.” That is, as far as the state is concerned, the decedent transferred the property during life in the hopes of passing on some inheritance tax savings to his loved ones, but really intended for the property to pass at the time of his death.
Hence, the beneficiary of that transaction must still pay inheritance taxes on the property she received. Pennsylvania does, however, cut beneficiaries in this scenario a small break by only taxing any value that is more than $3,000.
There are other, more obscure transfers of property that can occur within a person’s lifetime that will trigger inheritance tax liability. They are transactions that the state similarly presumes were made in contemplation of death, and they generally involve situations where the person giving the property keeps for himself certain rights to the property up until the time of his death.
Inheritance tax rates depend on the relationship between the person receiving the property and the decedent. A surviving spouse does not have to pay inheritance taxes on property she receives from the estate of her late spouse. Children of the decedent must pay 4.5 percent of the value of the property unless they are younger than 21, in which case no inheritance tax is due. Brothers and sisters to the decedent must pay a 12 percent inheritance tax rate. All other people must pay 15 percent of the value of the property in inheritance taxes.
(This article is intended as a discussion of legal topics that are often confusing to many lay people; it is not, and should not be relied on, as legal advice. Attorney Jesse White is licensed to practice solely in Pennsylvania and anyinformation discussed relates solely to Pennsylvania law. If you have a question for the attorney, contact The Law Office of Jesse White in Cecil at 724-743-4444 or visit www.jessewhitelaw.com.)