What should I know about estate taxes in Pennsylvania?

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When you pass away, it may be very important for you to leave your estate to your loved ones. After all, you may want to do everything possible to care for them, even after you’ve passed. As such, it’s essential to work with Pennsylvania estate planning attorneys to ensure your wishes are met upon your passing. However, one thing you may not plan for are estate taxes your property can incur. If you’re unfamiliar with this process, you’ll want to keep reading. You’ll learn what these taxes are and how to minimize them.

What are estate taxes?

When you pass away, you have to transfer your property to your beneficiary. This transfer will endure what’s known as an estate tax.

However, it’s important to note that only applicable estates will incur taxes. As of 2023, the federal threshold is $12.29 million worth of assets. In Pennsylvania, there is no state estate tax, but they do impose an inheritance tax.

Essentially, the person receiving portions of the estate will be taxed depending on their relationship to the deceased. In Pennsylvania, these inheritance taxes are as follows:

  • 0% for transfers to a surviving spouse
  • 4.5% on transfers to lineal heirs
  • 12% on transfers to siblings
  • 15% on transfers to other heirs, with an exception for charitable organizations

How can I reduce them?

Though it may not seem possible, there are methods you can use to reduce estate taxes upon your death.

One method is to place your assets in an irrevocable life insurance trust. This trust holds your life insurance policy and is common for those near the exemption mark. For example, you may find that you’re close to the limit, but your life insurance policy would put you over the threshold. This allows the funds in your policy to be held from your estate, meaning they will not incur the tax while still going to the designated beneficiaries.

Another way you can reduce it is to make a martial transfer. However, this only avoids the estate taxes upon the passing of one spouse. As long as your spouse is a U.S. citizen, you can make a tax-free gift of any amount. As such, your spouse will receive the entirety of the estate. However, when your spouse passes, the entire estate, including the gifts, will be taxed.

Can an attorney help?

If you’re planning your estate, navigating the tax portion can be confusing as there are seemingly many rules you must consider. As such, it’s essential to understand that enlisting the assistance of an experienced attorney can help you through this complex process.

When you need help, Friedman Schuman has the legal team you need. Our dedicated firm understands that estate planning can be a complex process. As such, we are ready to help you through this process to help you achieve peace of mind that your loved ones will be taken care of upon your death. Contact us today to learn more.

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