All assets which you own or control at the time of your death, with few exceptions, are subject to the federal estate and Pennsylvania inheritance tax at the time of your death. This includes assets which you own in your individual name, jointly with others or which pass to someone by beneficiary designation.
Federal Estate and Gift Tax
In 2016, each person can give up to $5,450,000 either during lifetime or at death free of the federal estate and gift tax. Therefore, if your estate is valued at less than that amount after deducting debts and estate administration expenses, your estate will owe no federal estate tax. However, this assumes that during your life you have not made any taxable gifts.
Currently, each person can give up to $14,000 per year to each person without incurring gift tax or reducing the amount that you can give tax-free at death. The benefit is that the value of your estate taxed at death will be reduced. This tax benefit is amplified if you give property that later appreciates in value. There are also may non-tax reasons for making lifetime gifts.
Pennsylvania Inheritance Tax
However, even if the federal estate tax is not applicable in your circumstances, your estate will still be subject to the Pennsylvania inheritance tax. There are several rates at which property is taxed and the rate depends upon the classification of the beneficiary receiving the property.
• 0% Spouses
• 4.5% Grandparents, parents, children and grandchildren
• 12% Siblings
• 15% All other beneficiaries
The federal estate and Pennsylvania inheritance tax laws are very complex. Therefore, you should discuss the tax ramifications of your estate plan with an experienced attorney.