Our estate planning law firm with offices in Philadelphia, Montgomery and Delaware County often explain to families the probate process.  During probate your executor or administrator will gather all of your assets, pay any debts, taxes, and distribute the remaining assets to your survivors. Only probate assets are included in your estate. There is, however, no exact definition of a probate asset because it depends on how the asset is owned or even transferred during a person’s life. Non-probate assets, however, are typically:

• Joint property “payable on death”;
• “In trust for” accounts;
• Life insurance with beneficiary designations; and 
• Pension and retirement accounts with beneficiary designations.      

Most clients are concerned about the estate and inheritance taxes.  Year 2010 was a very unique in that there was no Federal Estate Tax on any estate, regardless of its size.  Heirs of extremely wealthy Americans, like George Steinbrenner (deceased owner of the New York Yankees) realized substantial tax savings that year due to the repeal of this tax.  The moratorium on federal estate tax ended in 2010 and the federal estate tax returned in 2011.

For most Americans the federal estate tax, even after 2010, won’t impact their estates. The Federal Government currently imposes a Federal Estate Tax on any estate valued at over 11.7 million dollars (2021).   For those estates that exceed this amount, there are several credits to offset the federal tax, the most important of which is the “Unified Credit” which can minimize or even eliminate your federal estate tax obligation.   

In addition to the Unified Credit, there is the Marital Deduction for the surviving spouse which provides an unlimited tax shelter for assets transferred to a surviving spouse.  Married couples enjoy the unique ability to combine the Marital Deduction with the Unified Credit to create a separate entity for estate tax purposes.  The trust comes into existence at the deceased spouse’s death to support the surviving spouse during the rest of his/her life. 

          While many individuals don’t need to worry about federal estate taxes, they must consider Pennsylvania’s Inheritance during the estate planning process.  The amount of the tax varies depending value of the property received and the heir’s relationship to the decedent.  There is a spousal exemption to the tax so there are no taxes owed on any assets transferred between spouses at death.  Transfers to charities are also exempt from the tax.  All other distributions are subject to the different tax rates.   

The tax is imposed on the value of the estate minus any debts owed, funeral expenses, and probate administration costs.  There is also a $3,500.00 family exemption available for spouses, children and parents. 

          The rates for Pennsylvania inheritance tax are as follows:

• 0 percent on transfers to your spouse or to your child aged 21 or younger;
• 4.5 percent on transfers to direct descendants and lineal heirs;
• 12 percent on transfers to siblings; and
• 15 percent on transfers to all others, except charitable organizations, exempt institutions, and certain government entities.  

Contact an Estate Planning Lawyer Today

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