Inheritance Taxes in Pennsylvania
Citation
Inheritance and Estate Tax Act, 72 P.S. §§ 9101-9196.
Associated Regulations, 61 Pa. Code Chapter 93.
Overview
Per the Pennsylvania Department of Revenue:
"Inheritance tax payments are due upon the death of the decedent and become delinquent nine months after the individual's death. If inheritance tax is paid within three months of the decedent's death, a 5 percent discount is allowed."
Inheritance Tax rates from the Pennsylvania Department of Revenue
Inheritance Tax may be due even when property does not pass through operation of probate[1], such as:
- Transfer of jointly held property (except property held jointly by spouses)
- Transfer of remainder after death of life tenant
- Transfers made within 1 year before the decedent's death for nominal or no consideration
Underwriting
- The documents necessary to determine the inheritance tax lien has been satisfied are: (1) a copy of the filed Inheritance Tax Return (with Schedules showing the Property was reported), and (2) a final Notice of Appraisement issued by the Department of Revenue showing the taxes have been assessed, paid, and there is a $0 balance.
- In lieu of the above, it is common for the title agent to hold an escrow amount necessary to cover the inheritance taxes until the Estate (or Transferee) is able to complete the Tax Return process. The customary escrow includes a 1.5x cushion, and is based upon the sale price of the Property.
- Although taxes for the entire Estate attach to all of the Estate's property, the Department is required to issue a certificate releasing a specific piece of property when taxes are paid on the full value of that property without any deductions.[2]
- Per guidance from the Department of Revenue, the lien does not expire if the property is not reported to the Department in an open Estate. The Department has been willing to verify through email if taxes have been paid on older Estates where the documentation may not be available in the local Register of Wills' Office.
- Property that would be subject to the "lookback" for gifts made within 1 year of the decedent's death[3] is not subject to the lien in the hands of a bonafide purchaser or mortgagee from the transferee.[4]
Attachment of Lien to Real Estate
According to a letter from the Pennsylvania Department of Revenue's Deputy Chief Counsel dated May 1, 2018 ("2018 Letter"), the lien attaches at the time of the decedent's death. The lien is secret or hidden because it cannot be ascertained until an Estate is opened and the subject property is reported to the Department.
Duration
The Department's lien for inheritance taxes lasts until twenty (20) years after an Estate is opened and the inheritance tax return is filed.[5] If the Department takes action within twenty (20) years (i.e. files a formal lien), then the lien becomes indefinite.[6]
If there are bonafide purchasers of a parcel which was not reported in an opened Estate and more than 20 years and 9 months have passed since the date of death, the Department will abstain from looking to the property for future collection activities.[7] The Department does not consider any purchaser acquiring the Property directly from an Estate, or a transferee from a decedent as a "bonafide purchaser".
- ↑ See, e.g., 72 P.S. §§ 9107, 9108. The transferee of property subject to taxation must file a return for any property not included in the Personal Representative's return. See 72 P.S. § 9136(a)(2)
- ↑ See 72 P.S. § 9175(c),(d)
- ↑ See 72 P.S. § 9107
- ↑ See 72 P.S. § 9172
- ↑ See 2018 Letter
- ↑ See 2018 Letter; 72 P.S. § 1404.1
- ↑ See 2018 Letter
