financial advice inheritance

Inheritance in Pennsylvania

November 15th 2018 | Posted in Blog, Financial Planning

When you receive an inheritance in Pennsylvania, along with the good news you might also get some bad news. I have listed some of the good news as well as some of the bad news that accompanies certain assets Pennsylvania residents inherit.

Traditional IRA, 401(k), 403(b)
Good news: Since there are named beneficiaries, this asset does not pass through probate. You will not owe Pennsylvania state income tax*
Bad news: You will owe federal income tax, and Pennsylvania state inheritance tax* will be assessed as well.
*PA Tax Guide

Non-Qualified Annuity
(Not an IRA)
Good news: Since there are named beneficiaries, it is not a probated asset. You will not owe federal income tax or Pennsylvania state income tax on the cost basis.
Bad News: You will owe federal and Pennsylvania state income tax on the gain. Pennsylvania state inheritance tax will be levied on the total value of the annuity.

Stocks, Bonds, Mutual Funds
(Not Heid in a retirement account)
Good news: Because you get a stepped-up cost basis, you will not owe federal or Pennsylvania state income tax.
Bad news: These assets typically have to go through the probate process, and Pennsylvania state inheritance tax will also have to be paid.

House
Good news: You get a stepped-up cost basis so there is no federal or Pennsylvania state income tax due.
Bad news: If someone other than the spouse inherits the house, the house will probably have to go through the probate process, and Pennsylvania state inheritance tax will have to be paid.

Cash
Good news: There is no federal income tax or Pennsylvania state income tax for heirs.
Bad news: It is a probated asset, and Pennsylvania state inheritance tax will be levied.

Life Insurance
Good news: Since there are named beneficiaries, it is not a probated asset. It is federal and Pennsylvania state income tax-free and Pennsylvania state inheritance tax-free.
Bad news: If the deceased policy owner’s estate exceeded the federal exemption limit ($11,200,000 in 2018), the policy’s death benefit would be considered part of his or her taxable estate.

It is always helpful to be informed when you inherit valuable assets. Since each person’s situation is unique, we suggest that you consult your tax advisor with questions specific to your circumstances.

Robert B. Miller | CRC Advisor

Email Robert B. Miller

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