You want to make sure your loved ones are taken care of even after you are gone. A proper estate plan is a great way to ensure the individuals you designate receive set portions of your estate.
In the state of Pennsylvania, your survivors will face an inheritance tax. Knowing how these taxes work may help you in your planning decisions.
Not estate tax
Depending on the state an individual lives in, an estate may be subject to an estate tax and an inheritance tax. It is important to note these are different deductions. An estate tax applies to the entire estate as a whole. On the other hand, an inheritance tax only affects the shares of certain beneficiaries of the estate.
Who is subject?
There are a few different groups of individuals who may face an inheritance tax. These groups include:
- Charitable organizations
The Pennsylvania Department of Revenue gives a full breakdown of inheritance tax rates, which are due on the passing of the individual and become delinquent nine months after the individual's passing. Beneficiaries who pay the tax within three months of the individual's passing may receive a 5% discount. Depending on the classification of individuals in the groups, they may be eligible for a partial or entire exemption from the tax.
Spouses receive a tax exemption, and the benefit is portable. This means a spouse may receive her or his partner's exemption credits after the individual passes. To receive the credit, the surviving spouse must file an estate tax return.
These are a few of the key facts to understand about inheritance tax. If you are planning your estate or receiving an inheritance in Pennsylvania, it is important to know what all you can expect and what the government will expect of you. Take time to do your research so you may determine what will work best for you and your loved ones.