Jameson Stone Law handles inheritance tax planning and returns across Central Pennsylvania, and Daniel Jameson leads the estate work. Pennsylvania is one of a small number of states that still taxes what people inherit, and unusually, the rate depends entirely on who receives it rather than on how much the estate is worth.
The Rates
A surviving spouse pays nothing. Children, grandchildren and parents pay 4.5 percent. Siblings pay 12 percent, which surprises families who assume brothers and sisters are treated like children. Everyone else pays 15 percent, and that category is wider than people expect. Nieces, nephews, cousins, close friends and unmarried partners all sit in it, however long the relationship lasted.
Two details matter more than they look. There is no exemption threshold at all, so the tax applies from the first dollar rather than kicking in above some figure. And stepchildren are treated as lineal descendants at 4.5 percent without needing to have been formally adopted, which is worth knowing because the difference between 4.5 and 15 percent on a $200,000 inheritance is about $21,000.
Three Months
The return is due nine months after the date of death, and that deadline is the one everybody knows about. The one worth knowing about is earlier. Pennsylvania applies a five percent discount to any inheritance tax paid within three months of death, and it applies to an estimated prepayment rather than requiring a finished return.
Which means the discount is available before the estate is anywhere near settled, and it is missed constantly for exactly that reason. Families wait for appraisals, for accounts to be located, for the picture to become clear, and the window closes while they are being sensible. If enough is known to make a reasonable estimate, paying early is free money. On a $500,000 estate passing to children it is a little over a thousand dollars, and it scales from there.
What Escapes It
Life insurance proceeds on the life of the person who died are exempt from Pennsylvania inheritance tax whoever receives them, which makes life insurance the main planning tool where a 15 percent beneficiary is involved. Property jointly owned by spouses is exempt. So are charitable bequests and transfers to qualifying religious, educational and government bodies. Working farmland transferred to eligible family can qualify for relief, as can certain closely held family businesses continued by the family afterward.
The 15 percent rate is where planning earns its keep. A $500,000 bequest to an unmarried partner costs $75,000 in tax, and Pennsylvania does not treat a long partnership as a marriage for this purpose. Naming that person as a life insurance beneficiary instead delivers the same value with nothing taken off it. That is the kind of decision that has to be made while there is still time to make it.
What We Handle
Preparing and filing the return with the Register of Wills, and getting the prepayment in early.
Structuring a plan around who inherits what, particularly where a 15 percent beneficiary is involved.
Establishing where life insurance, farmland or a family business takes an asset outside the tax.
Assets passing outside the will that are still taxable, and often overlooked until they are assessed.
Our Process
01
Getting a defensible estimate together inside three months, because the discount closes long before the return is due.
Who falls at nothing, at 4.5, at 12 or at 15 percent, since the family tree drives the entire calculation.
Life insurance, spousal joint property, charitable gifts, farmland and family business relief, applied rather than left unclaimed.
Two things about this tax catch people out. It reaches assets that never go through probate, so a will that leaves nothing does not mean no tax is owed. And the most valuable deadline is the one nobody mentions, three months rather than nine.
It depends on who inherits rather than on the size of the estate. Nothing to a surviving spouse. Four and a half percent to children, grandchildren, stepchildren and parents. Twelve percent to siblings. Fifteen percent to everyone else, including nieces, nephews, friends and unmarried partners. There is no threshold below which nothing is due, so a modest estate passing to a nephew is taxed from the first dollar while a large one passing to a spouse is not taxed at all. The rates apply to the net value after debts, funeral costs and administration expenses come off.
Sometimes, and the room to do so is much greater before death than after. Lifetime gifting works if it is done more than a year before death, though on an appreciated house it frequently costs more in capital gains than it saves here, which we cover on our real estate transfers page. Life insurance is the cleanest tool, because proceeds on the deceased’s life are exempt whoever receives them. Charitable bequests are exempt. Farmland and family business relief exist for the right circumstances. What does not help is a revocable trust, which avoids probate but not this tax.
No, and this is the most common way money is lost on these estates. The five percent discount applies to tax paid within three months of death, including an estimated payment, and it does not require the return to be complete or the valuations to be final. Waiting for certainty is understandable and it costs you the discount. If a reasonable estimate can be made from what is already known, making a payment on account inside the window is almost always worth doing, and any overpayment comes back.
Not from probate, not from when the paperwork arrives, and not from when the family feels ready. Whether a prepayment is worth making is a short conversation, and it is worth having early rather than after the window has gone. Daniel Jameson leads the firm’s estate work, and the first conversation costs nothing.