Estate and Inheritance Tax Lawyers in Altoona, Pennsylvania

Planning for the future often involves discussing sensitive topics, including taxes on estates and inheritances.

With the right approach, proper estate planning can help minimize tax burdens and preserve wealth.

How should you approach estate planning? Here at Goldstein Heslop Steele Clapper Oswalt & Smith, we’ve helped clients in Altoona, Pennsylvania, since 1917. Contact us today to learn more about our estate administration services and how we can assist you.

An Introduction to Estate Taxes in Pennsylvania

Pennsylvania doesn’t impose a state-level estate tax. This means that residents of the Commonwealth only need to consider federal estate taxes.

The federal estate tax applies to estates exceeding a certain value, with the threshold currently set at $12.92 million for individuals (as of 2023). For married couples, the exemption doubles if proper planning is in place.

Key Points About Federal Estate Tax

Some important points about federal estate taxes include:

• Estates under the exemption threshold aren’t subject to federal estate taxes.

• For estates exceeding the threshold, the tax rate starts at 18% and can reach as high as 40%.

• Gifting assets during your lifetime can reduce the taxable value of your estate, thanks to the federal gift tax exemption. For example, if you gift up to $17,000 annually to multiple recipients, the cumulative reduction in estate value can be significant, particularly for larger estates.

While Pennsylvania lacks an estate tax, the state’s inheritance tax can still have a significant impact on beneficiaries.

Inheritance Taxes in Pennsylvania

Unlike estate taxes, inheritance taxes are paid by the beneficiaries who receive assets from the deceased. Pennsylvania’s inheritance tax rates depend on the relationship between the deceased and the beneficiary.

Pennsylvania’s inheritance tax rates are:

• 0% for transfers to a surviving spouse or a child under 21.

• 4.5% for transfers to lineal descendants (e.g., children, grandchildren, parents). These lower rates often make planning for direct family transfers a priority.

• 12% for transfers to siblings. The higher rate for siblings underscores the importance of considering alternate strategies like joint ownership or trusts.

• 15% for transfers to other heirs (e.g., friends, cousins, or non-relatives). To reduce this rate, many individuals explore charitable donations or lifetime gifting options.

Exemptions and Deductions

Certain transfers are exempt from inheritance tax, including:

• Life insurance proceeds: These are generally free from tax and can provide a significant financial safety net for beneficiaries.

• Agricultural property: To qualify, the property must remain in agricultural use so that it continually contributes to the community and the family’s livelihood.

• Retirement accounts: If left to a spouse, IRAs and 401(k)s may be exempt. These accounts often form a large portion of an estate, so proper planning here is crucial.

• Certain family-owned businesses: Business owners can benefit from exemptions if the enterprise continues operations under family ownership for at least seven years, preserving jobs and family income.

Being aware of these rates and exemptions is critical when structuring your estate plan to minimize tax burdens for your loved ones.

Steps to Minimize Estate and Inheritance Taxes

Effective estate planning is the key to reducing tax liabilities. Here are some strategies to consider.

Establish a Trust

Trusts can help you manage and distribute assets while reducing exposure to taxes. A revocable living trust keeps assets within your control during your lifetime and avoids probate. Additionally, irrevocable trusts can provide greater tax advantages by removing assets from your taxable estate altogether.

Utilize Lifetime Gifting

Pennsylvania doesn’t tax lifetime gifts, and the federal annual gift tax exclusion allows you to gift up to $17,000 per recipient (as of 2023) without reducing your estate tax exemption. Over time, consistent gifting can significantly lower your estate’s taxable value while benefiting your loved ones directly.

Leverage Family-Owned Business Exemptions

Pennsylvania offers tax benefits for family farms and businesses. To qualify, the business must remain within the family and continue operating for seven years. Proper documentation and planning are essential to make sure these benefits are applied.

Update Beneficiary Designations

Confirm that accounts such as life insurance policies and retirement funds are correctly titled to avoid unnecessary taxes. This simple step can prevent disputes and reduce administrative burdens for executors.

Charitable Giving

Donations to qualified charities are exempt from inheritance tax and can reduce your estate’s overall value. Establishing a charitable trust or making planned gifts can align your philanthropic goals with tax-saving benefits.

Consider Joint Ownership

Jointly owned property may pass to the surviving owner without being subject to probate, potentially simplifying the inheritance process. However, it’s important to understand how joint ownership affects control and tax responsibilities.

Evaluate Tax-Advantaged Investments

Certain investments, such as municipal bonds, offer tax benefits that can reduce overall estate liabilities. Working with a financial advisor can help identify the right mix of investments for your situation.

Review Your Estate Plan Regularly

Tax laws and personal circumstances can change. Regular reviews help verify your plan remains aligned with your goals. For instance, major life events like marriage, divorce, or the birth of a child may require adjustments to your estate plan.

Common Questions About Estate and Inheritance Taxes

It’s natural to have questions about this intricate process. Here are some of the most common questions we get.

Who Pays the Inheritance Tax in Pennsylvania?

Beneficiaries are responsible for paying the inheritance tax, and the amount depends on their relationship to the deceased. Executors often handle the filing and payment using funds from the estate. It’s essential to communicate with beneficiaries early to confirm everyone understands their obligations.

When Are Taxes Due?

Inheritance tax payments are due within nine months of the decedent’s death. However, a 5% discount applies if the tax is paid within three months. Executors can work with professionals to streamline the filing process and take advantage of early payment discounts.

Are There Penalties for Late Payments?

Yes, interest and penalties accrue if the inheritance tax isn’t paid by the nine-month deadline. Executors should prioritize filing and payment to avoid unnecessary costs, especially when multiple beneficiaries are involved.

What Happens if a Beneficiary Can’t Pay?

If a beneficiary can’t pay the inheritance tax, the estate may cover the cost. However, this depends on the terms outlined in the will or trust and the availability of estate funds. Executors should consider this possibility when allocating assets.

How Are Assets Valued for Tax Purposes?

Assets are valued at their fair market value on the date of the decedent’s death. An alternate valuation date may be used in some cases, depending on tax circumstances. For example, real estate appraisals or market analysis reports can provide accurate valuations.

Executors in Managing Taxes

Executors play a crucial role in managing and settling an estate. Their responsibilities include:

• Filing the inheritance tax return (Form REV-1500 in Pennsylvania).

• Paying taxes due from the estate’s funds.

• Seeing that all beneficiaries receive their shares as outlined in the will.

• Keeping accurate records of all transactions and filings.

• Handling disputes among beneficiaries and working with legal advisors to resolve any issues. Executors must also coordinate with appraisers, accountants, and legal professionals to make sure that all valuations and filings are accurate.

How Our Firm Can Help

We understand that estate planning involves personal and financial considerations that require careful thought. Our firm is here to assist with creating a plan tailored to your unique situation. From drafting wills and trusts to advising on tax strategies, we guide you every step of the way.

Estate planning isn’t just about protecting assets—it’s about providing peace of mind for your family. Whether you need assistance with setting up trusts, understanding Pennsylvania inheritance tax exemptions, or minimizing federal estate taxes, we’re ready to help.

Contact Us Today for Estate Planning Services

Planning for estate and inheritance taxes in Pennsylvania can feel overwhelming, but the right approach makes all the difference. If you’re in Altoona, Pennsylvania, or the Blair County area, including Tyrone, Frankstown, Hollidaysburg, Williamsburg, Gallitzin, Cresson, Claysburg, Huntingdon, and Bellwood, Goldstein Heslop Steele Clapper Oswalt & Smith is here to help. Contact our firm today to schedule your consultation.