smithff33[at]aol.com (Herb Smith) wrote:

- quote -

This is not correct, because the executor is required by law
to pay the inheritance tax and then deduct the tax from the
shares of the beneficiaries.

**Dan Evans
**I post information, not advice.

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- quote -

This statement is not entirely correct. In general, the PA
inheritance tax is paid by the estate and then the net
amount is paid to the heirs, per the terms of the will.

For assets that pass outside the estate (retirement plans,
IRA, ITF, POD, TOD and joint accounts) the tax is paid by
EITHER the estate or the beneficiaries, depending on the
direction in the will. That's how it works in PA - could be
different in other states, but trust me, this is how it is
in PA.

Linda, EA in PA
34 years trust and estate experience

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- quote -

There still is a federal credit, until 12/31/04 and PA has
not abolished the estate tax, but has changed the method of
calculating the tax.

Linda, EA in PA

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PA Inheritance tax is levied on all estates, regardless of
size, without regard to the federal exemption. With some
exclusions, the tax is computed on the net value of the
estate, which means gross assets minus allowable deductions
= net value.

The tax rate is 0% between spouses, 4.5% for lineal
descendants (children, grandchildren, daughter-in-law,
son-in-law, etc) 12% for siblings (must have one common
parent) and 15% for everybody else.

In 2002, PA changed the rules with regard to Estate tax.
That gets a little more complicated to explain here.
Suffice to say that if you have an estate with a lot of life
insurance, you may have an additional estate tax to pay.

The attorney who is writing your will for you, as part of
the estate planning process, should be able to do a
calculation of what the tax consequences will be on your
death.

Linda, EA in PA
34 years estate and trust experience

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"Helen M. Choate" <toche[at]rcn.com> wrote:

- quote -

Try this link

<http://www.revenue.state.pa.us/revenue/cwp/browse.asp?a=190&bc=0&c=34165< -
------------------------------------------------> Basically, the PA inheritance tax takes 4.5% (direct heirs),
12% (siblings)or 15% (other heirs) of the decedent's estate
with deductions for funeral and administration expenses and
debts of the decedents.There is really no exemption,
although there is no tax on assets left to spouses.
Formerly, there was also an additional estate tax which
kicked in only if the inheritance tax were less than the
Federal credit. Since there is no more Federal credit, PA
abolished this tax.

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toche[at]rcn.com (Helen M. Choate) wrote:

- quote -

You appear to be confusing the state ESTATE TAX (which is
assessed on the value of the net estate ABOVE $675,000) and
the INHERITANCE TAX (which is assessed on the value of the
assets INHERITED by the beneficiary. The estate pays the
estate tax, then the estate is distributed to the
beneficiaries, the beneficiaries pay their own inheritance
tax. The latter is 15% of the amount they each receive.

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toche[at]rcn.com (Helen M. Choate) wrote:

- quote -

Pennsylvania imposes TWO taxes at death, an "inheritance
tax" and an "estate tax." What you have been reading about
is the "estate tax," which is very different from the
inheritance tax.

The inheritance tax is imposed on pretty much the same
things as are subject to the federal estate tax, with a few
exceptions:

1. Life insurance is not taxed;
2. Qualified retirement benefits are not taxed if the
decedent is not yet 59-1/2 (i.e., if the decedent cannot
withdraw the funds without payment of a penalty); and
3. Jointly owed assets are included only in proportion to
the number of co-owners, so if a bank account is in
joint names with a child, only half of the account is
subject to tax.

There are deductions for debts and administration expenses,
much like the federal estate tax.

The rate of tax depends on the relationship of the
beneficiary to the decedent. The rates are 0% for spouses,
4.5% for children and other descendants (or parents and
ancestors), 12% for brothers and sisters, and 15% for
nephews, nieces, cousins, more distant relations, and
unrelated beneficiaries.

There are no exclusions or exemptions, so the inheritance
tax can apply to $1 (although the Department of Revenue does
not expect to receive payment for less than $1 of tax).

You can find the instructions to the inheritance tax return
(Form REV-1500) as well as a publication with frequently
asked questions about the tax, on the web site for the Pa.
Department of Revenue,
http://www.revenue.state.pa.us/reven...0&bc=0&c=34165

You can also find the complete text of the inheritance tax
act (which isn't that long or that complicated) at
http://www.alignedpartners.com/entry...entry_page.htm

Now, the "estate tax" is a different animal. Before
7/1/2002, the Pennsylvania "estate tax" was nothing but the
difference (if any) between the federal estate tax credit
for state death taxes (IRC section 2011) and the inheritance
tax. So, if the inheritance tax was less than the credit
allowed by the federal estate tax, the "estate tax" would
make up the difference. (This is sometimes called a "sponge
tax" or "slack tax".) After 7/1/2002, it becomes more
complicated, because the law was changed to define federal
credit as the credit allowed under the law as it existed as
of 6/1/2001. That means that the credit is calculated
without regard to the changes made by the Economic Growth
and Tax Relief Reconciliation Act of 2001, which phased out
the state death tax credit and increased the federal
exclusion amounts (among other things). For a Pa. decedent
dying in 2003, is therefore possible to owe "estate tax"
that exceeds the state death tax credit actually allowable.

However, the amended Pennsylvania estate tax almost certainly
violates the uniformity clause of the Pennsylvania
constitution, and is now being challenged in court. (See
http://evans-legal.com/dan/paesttax.html for details on this issue.)

**Dan Evans
**I post information, not advice.

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Helen M. Choate wrote:

- quote -

First off you are confusing PA Inheritance taxes (Form
Rev-1500) with PA Estate Taxes (Form Rev-229). Yes, PA has
both types of transfer tax. Inheritance taxes actually paid
is a credit against the PA estate tax.

As far as I can tell, all PA did is to decouple from the
maximum credit for state death taxes in order to continue to
collect taxes. Under current federal law, the credit would
decrease over time and disappear completely in 2005 (I think
it's 2005!). Thus, any state who based their tax on the
federal credit would watch their estate tax revenue
disappear. Hooray for CA on this point!

I haven't read the statute but I would think that this now
requires that you compute the PA estate tax by using the
same rate table (Computation of Maximum Credit for State
Death Taxes) found in IRS Form 706 instructions. However,
the taxable estate would be based on an exclusion of
$675,000 rather than the current $1 million and soon to be
$1.5 million. The rate table in the current Form 706
instructions is no different than the table in the 2001
instructions. It goes from .8% to 16%.

--

Alan
http://taxtopics.net

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toche[at]rcn.com (Helen M. Choate) writes:

- quote -

You want to read REV-1501 (Instructions):

http://www.revenue.state.pa.us/reven...A=190&Q=185860

All real property and all tangible personal property
located within the Commonwealth of Pennsylvania is
taxable, as is all intangible personal property of a
resident decedent regardless of where it is located.
A contract to sell any real property or any tangible personal
property located outside the Commonwealth of
Pennsylvania owned by a resident decedent makes such
property taxable, provided the jurisdiction where the
property is located does not subject it to Inheritance Tax.
Other taxable assets include non-Pennsylvania lottery
winnings, survival action proceeds, certain retirement
benefits, IRAs, annuities, “in trust for” bank accounts,
jointly-owned assets, and living trusts. The designation of
a beneficiary in the event of the death of an owner allows
for the transfer of ownership of some assets without formal
probate. However, these assets are still subject to
Inheritance Tax.

"Jack" - John H. Fisher - TaxService[at]aol.com
Philadelphia, Pa - Atlantic City, NJ - West Wildwood, NJ
My Newsgroups & Boards at: http://members.aol.com/TaxService/index.html

Where Ignorance is bliss, 'tis folly to be wise!=

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In an effort to do some estate planning, I am trying to
calculate the PA Inheritance Tax that will be due on my
estate. So far, the only site I've found is:
http://www.finance.cch.com/pops/c50s15d170_PA.asp where the
following is stated:

"As far as estate taxes go, Pennsylvania once required
estates to file a state return if a federal estate tax
return (Form 706) had to be filed. Reacting to changes made
to federal estate tax laws, however, Pennsylvania
"de-coupled" the calculation of its estate taxes from
current federal law. Instead, the state estate tax must be
computed based on the federal tax code as it existed on June
1, 2001. The net result is that the state filing threshold
is $675,000 for estates of decedents dying on or after July,
1, 2002."

Since my beneficiaries are not lineal descendants, the tax
rate will be 15%. But what is that 15% of? The total net
value of the estate or the amount over $675,000? Or does the
last sentence simply mean that estates over $675,000 must
file REV-1500?

I have searched in vain all afternoon to find the relevant
sections of the federal tax code and Form 706 as they
existed on June 1, 2001. I have also searched the PA State
Revenue site and found only Form REV-1500 on which there
seems to be no allowance for the exclusion amount.

I would appreciate any advice or direction on clarification
of this issue.

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