Last Wills and Testaments may leave property to siblings, nieces, nephews, cousins or even non-family members. These inheritances are subject to Pennsylvania inheritance taxes. Siblings pay a 12% inheritance tax while nieces, nephews, cousins or non-family members pay a 15% inheritance tax. Depending on the type of assets, there may be other tax implications as well. Planning for this type of inheritance with an elder alw attorney to help reduce these taxes can be important.
For example, life insurance proceeds are not subject to PA inheritance taxes, so naming a sibling as the beneficiary of a life insurance policy rather than leaving a sibling the sum of $10,000 in a Will can help to save the 12% inheritance tax. However, naming a sibling as the beneficiary of an IRA subjects the sibling to the 12% inheritance tax on the entire value of the IRA as well as personal income tax liability on each withdrawal by the sibling over his or her life expectancy. If the inheritance taxes are paid within 90 days of the date of death (a “discount period”), the sibling can save 5% on the amount of tax owed. If a sibling was left $25,000 in a Will, the inheritance tax due would be $3,000. If the taxes were paid within 90 days, the 5% discount would save $150 in taxes. Making a plan and understanding Pennsylvania inheritance taxes can assist a family in saving taxes, resulting in more money kept by the beneficiary.