What is the Difference between the Federal Estate Tax and the Pennsylvania Inheritance Tax? Even though the Federal Estate Tax and the Pennsylvania Inheritance Tax are both death taxes, they are different conceptually and philosophically.
Estate Plan Checkup – Differences between the Federal Estate Tax and the Pennsylvania Inheritance Tax.
The Federal Estate Tax is applied to the fair market value of assets owned by a person worldwide and is at a stated (although progressively graduated) percentage. For instance, a $12,000,000 estate would be taxed at the 40% bracket, regardless of the identity of the nonspouse beneficiary.
Estates of an unmarried deceased person that are under $5,250,000 do not pay Federal Estate Tax. There is an unlimited deduction for amounts passing to a surviving spouse.
The ultimate responsibility for the Federal Estate Tax is on the personal representative (executor or administrator) of the estate.
By contrast, the Pennsylvania Inheritance Tax is levied on transfers at varying percentages according to the transferee’s relationship to the deceased. Fair market values are used for this tax as well, but the rates of tax are follows:
- Spouse: 0%
- Lineal descendant (child, grandchild, great-grandchild, etc.): 4.5%
- Sibling: 12%
- All others: 15%
The ultimate responsibility for the Pennsylvania Inheritance Tax for the probate estate usually falls to the Personal Representative. The tax on non-probate assets belongs to each transferee for his or her share of the tax.
Both systems include many of the same types of assets (i.e. stocks, bonds, real estate, cash) to be taxed. However, there are differences. For instance, life insurance is included in the deceased’s taxable estate for Federal Estate Tax purposes, but not for Pennsylvania Inheritance Tax purposes. The forms are dissimilar, and treat items such as jointly held property differently.
If you are the personal representative or a beneficiary of an estate, don’t delay investigating death tax matters. A 5% discount is available for Pennsylvania Inheritance Tax liability if it is paid within three months after the date of death. Both returns are due nine months from the date of death, and that due date will arrive before you know it (just like a new baby).
Questions? Call Mary Jo Corsetti at 412-454-0228; or send an email to Mary Jo at mcorsetti@williamscoulson.com.