When coming up with an estate plan in Pennsylvania, one of the main issues to tackle is taxes. You need to know how much the state or federal government will take when your beneficiaries receive your estate. Here’s a look at estate taxes that may apply in your estate planning process.
Pennsylvania estate taxes
When you die, the government takes some money from your assets before your executor or trustee transfers them to your heir. This money is known as estate tax. Pennsylvania doesn’t have it, but the federal government will charge an estate tax at a rate of 18% to 40% on your property if it is worth $11.7 million in 2021 or $12.06 million in 2022. Estate planning can help reduce the amount of taxes the IRS will charge.
Pennsylvania inheritance tax
While the state doesn’t charge estate tax, Pennsylvania will impose inheritance taxes on the value of the asset your beneficiaries receive. The tax rate charged varies depending on your relationship with your beneficiaries. Here’s how it applies:
- If your child is 21 years or younger, no tax is applied when your spouse receives assets.
- If you own property jointly with your spouse, the IRS won’t charge inheritance tax.
- If you are transferring property to your direct descendant, also known as lineal heirs, the government will impose a tax rate of 4.5%.
- The IRS charges a 12% tax rate on the property your siblings receive.
- Any other heir will get a 15% tax on their transfer.
Soon after a decedent dies, their heir should pay inheritance taxes. Usually, the time limit is nine months. However, if they pay within the first three months, they can get a discount of about 5%.