Give your assets to your children. Use life insurance to give money to beneficiaries who pay taxes with the highest tax rates. Buying Real Estate Outside of Pennsylvania. When most liquid assets are held within a traditional IRA or other retirement account before taxes, this can present some tax challenges for donations.
You would need to take a taxable distribution from your IRA account to donate the money. It is undesirable to pay income taxes on money you do not need. As a result, one giving strategy to consider for those in a strong financial position is to donate the required annual minimum distributions from IRAs. Anyway, this money had to come out of IRAs, so donating these funds does not have any additional tax costs.
Donations are especially beneficial when the beneficiaries of the property will be siblings (subject to a 12% PA inheritance tax rate) or those who fall into the “other category” (subject to a 15% PA inheritance tax rate). Another category related to gifts is trust planning. When assets are contributed to certain types of trusts, including irrevocable trusts, PA inheritance tax can be avoided. However, this is not true in all cases.
It is important to work with an experienced Pennsylvania estate planning attorney to make sure that trust planning is handled correctly and that the language of the trust In the example above, from a tax planning perspective, it would probably make sense for Jane to donate to her amiga (inheritance tax rate of 15%), siblings in second place (inheritance tax rate of 12%) and linear heirs in last place (inheritance tax rate of 4.5%). My clients occasionally ask how to avoid this inheritance tax, especially with higher tax rates. The Pennsylvania income tax rate is a flat rate of 3.07%, and local income taxes range from% to 3.8398%. Pennsylvania is one of the few states that has an inheritance tax without an exemption for smaller estates.
Clearly, avoiding Pennsylvania inheritance tax isn't the only factor to consider when deciding to buy real estate in another state. In short, there are practical ways to minimize or avoid PA inheritance tax without needing to move to a state without inheritance or inheritance taxes. However, since the current tax rate on property passed to a spouse is zero percent, it doesn't create any taxes. Following the death of a child 21 years of age or younger, there is no longer any tax on assets transferred to that child's parents or stepparents.
Pennsylvania inheritance tax applies to assets that pass to beneficiaries when a person dies. Unfortunately, it's safe to say that the Department of Revenue says an IRA is subject to inheritance tax if the decedent was over 59 and a half years old at the time of death. Some may get advice at some point that buying a life insurance policy is a good idea to pass assets without your beneficiaries or your estate having to pay PA inheritance tax. While this technique will not be relevant in most situations, in conditions where a family was already involved or intended to be involved in the agricultural business anyway, this technique can also be used to minimize or avoid Pennsylvania inheritance taxes.
Even the Department of Revenue understands that there may be some cases in which a former Pennsylvania resident is now a resident of another state and may not be subject to Pennsylvania inheritance tax on most of their assets upon death. If the deceased did not have sufficient contacts with Pennsylvania, the liquid assets, often called personality, will not be subject to Pennsylvania inheritance tax. Under the 2000 tax changes, the six percent rate dropped to 4.5% effective for those who died after June 30, 2000. .