From our “Ask a Question” Mailbag: Asset Designation for Nieces and Nephews in Pennsylvania

Most Recently Updated July 8, 2018.

“At my death, I would like to leave a small gift to my Nieces and Nephews. Does it matter what assets I leave them?”

Asset Designation for Nieces and Nephews in Pennsylvania

Making gifts to nieces and nephews for Pennsylvanians forces the calculation of the Pennsylvania Inheritance Tax. The tax is levied on the transfer of your assets at your death, and the rates differ depending on who is the recipient.

PA Inheritance Tax Rates

Lineal descendants are subject to a 4.5% tax, while non-lineal descendants (other than siblings) are taxed at 15%. That is a substantial difference! While children and step-children are lineal descendants, nieces and nephews are not. When a client wants to include a niece or nephew in their estate plan, I hope that the client has life insurance. Life insurance is one of the few assets exempt from the Pennsylvania Inheritance Tax, so a gift of life insurance to a niece or nephew avoids the 15% tax. Life insurance has the added advantage of being very easy to change beneficiaries. If that niece or nephew forgets your birthday, you can change the gift amount quickly and easily, often over the internet.

The Life Insurance Option

If you do not have life insurance, I would still consider using non-probate assets to make your gift. Once you name a person in your will, that person becomes part of the probate notification process and the entire probate. This can increase the time your executor must spend on your estate and the overall costs. If instead of using you will, you name the niece and nephew as beneficiary of your IRA or using a Transfer on Death designation on one of your bank or stock accounts, you then do not have to include them in the probate process. Unlike you life insurance, these transfers will be subject to the Pennsylvania Inheritance Tax, which you should take into consideration.

More Planning Questions?

Appropriate planning for designations is only a piece of the Estate Planning process. By all means, if you want to learn more, please read my more detailed article, Estate Planning Everything You Need to Know.

In Conclusion: Asset Designation for Nieces and Nephews in Pennsylvania

I hope that this article was helpful in explaining the importance of estate planning for extended family members. Further, I included links to even more detailed information on my website so you can learn more. Therefore, please contact me and let me know how I did. Certainly, your comments and questions are welcome!

Let our Estate Planning lawyers help walk you through what can be a confusing process. To begin with, call to speak to one of our experienced estate planning lawyers.  By all means, our lawyers are ready to answer your questions. In fact, feel free to contact our office for a free consultation. Ultimately our goal is to make the process as painless as possible!

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Tags: Estate Planning, Estate Planning Attorney, Estate Planning Lawyer, Inheritance, Life Insurance, Pennsylvania, Pennsylvania Inheritance Tax rates, Philadelphia