April 12, 2020

First Line of Defense is Offense- Estate Planning to Take Control of Your Affairs

There are many financial decisions you can control to maximize your estate for your heirs after you pass.  Now more than ever, it is crucial to make sure your affairs are in order.  Pennsylvania is one of several states that still has an inheritance tax.

The tax rate for Pennsylvania Inheritance Tax is 4.5% for transfers to direct descendants, your lineal heirs that includes children, adoptive children, stepchildren, grandchildren, and parents. The tax rate jumps to 12% for transfers to siblings, and 15% for transfers to other heirs, except charitable organizations, exempt institutions, and government entities that are exempt from tax. Property owned jointly between husband and wife is exempt from inheritance tax, while property inherited from a spouse, or from a child aged 21 or younger by a parent, is taxed a rate of 0%.

Thus, the biggest decision and tax saving method is deciding who will inherit from your estate.  Your spouse will pay nothing, your children or grand children will pay 4.5%, brothers and sisters, 12%, and your neighbor and friend will pay the most tax at 15%.  If you have no direct heirs or spouse and will be giving your estate to an unrelated party, you should speak with an attorney or accountant to minimize the Inheritance Tax due in Pennsylvania.

It is also very important, especially if you have a large estate, that your Pennsylvania Inheritance Tax Return is filed timely.  Pennsylvania Inheritance Tax Return is due nine months from the date of death.  Interest accrues by the day for any return not timely filed.  If you are inheriting from an estate and/or are the executor/executrix, be mindful of the Pennsylvania deadlines.  It is very helpful to have an attorney probate an estate for you.

            There are some assets that are exempt from Pennsylvania Inheritance Tax.  These include life insurance and certain retirement accounts.  Maximizing your contributions to these assets can save thousands for your heirs.

Most importantly, it is also necessary to have a living will should you find yourself unable to make important medical decisions.  A Pennsylvania living will is also known as an advance directive. Your living will lets you state your wishes about health care in the event that you can no longer make your own health care decisions, you are permanently unconscious or have an end-stage medical condition.  A Pennsylvania living will also names an agent who will make medical decisions on your behalf. There are state laws that explain who can and can’t be named as your agent. A Pennsylvania living will must be signed by two witnesses.  While the law provides competent adults with the legal right to make their healthcare decisions in advance of becoming incapacitated, it also provides physicians and other healthcare providers with the right to notify who you appoint if they cannot comply with the directive in good conscience.

Who you appoint to make these critical decisions about your health and assets lets you take control of your affairs for your loved ones.   Estate planning is also critical in protecting your heirs from Pennsylvania Inheritance Tax.  Additionally, estate planning minimizes the chances of family strife and ugly legal battles.  Nothing is more upsetting then siblings fighting over money, racking up legal fees and draining an estate. The bottom line is if you want your assets and your loved ones protected when you are no longer here, you will need an estate plan. Without one, your heirs could face huge tax burdens, and the courts could designate how your assets are divided.  Taking control of your affairs now can protect your assets and loved ones for decades to come.

View More Estate Planning Strategies