Skip to Content

We are a Veteran Owned Business, providing 20% discounts for Veterans, First Responders, Elementary and High School teachers. Please contact us to set up a phone or Zoom meeting. Taking care of you and your family, It's What We Do!

Do lifetime transfers avoid the Pennsylvania Inheritance Tax?

Posted on Sat Feb 21, 2015, on Estate Planning

From our “Ask a Question” Mailbag: Avoiding the Pennsylvania Inheritance Tax Through Lifetime Transfers

Most Recently Updated July 9, 2018.

“My father wants to transfer a rental property he owns in Montgomery County into my name. If he does, will this gift avoid Pennsylvania Inheritance Tax?”

Avoiding the Pennsylvania Inheritance Tax Through Lifetime Transfers

Avoiding the Pennsylvania Inheritance Tax Through Lifetime Transfers

As a Montgomery County resident, at your father’s death, all assets he leaves you at death (except life insurance) will be subject to the Pennsylvania Inheritance Tax at the 4.5% children’s rate. That includes all gifts made within one year of the date of his death. So, if he transfers the rental property into your name and lives for at least one more year, at his death you will avoid Pennsylvania Inheritance Tax payment.

Depending on the facts, this might not be the best idea.

Transfer Basis

If your father transfers the real estate into your name, you will receive a Transfer Basis. This means your basis for tax purposes will be whatever his basis was on the day of transfer. If he has owned this property for some time, he may have depreciated the rental property down to zero basis. This means that, if he or you sell the property, the entire sale will be subject to Capital Gains Taxes.

Stepped Up Basis

If instead, your father keeps the property until his death and gives it to you in his will, you will receive a Stepped Up Basis. This means your tax basis will be equal to the fair market value of the property at the date of your father’s death. All Capital Gains up to that date are erased. You could sell the property at the date-of-death value and pay no Capital Gains Taxes.

You can see that depending on your father’s current basis and the value of the property, paying Capital Gains Taxes could far exceed the Pennsylvania Inheritance Tax.

More Options

Further options to consider are the chances that your father may create future debts. If he does, the property might have to be sold to pay those debts. In that case, paying a higher Capital Gains Tax is better than receiving no inheritance at all.

You father may also want to consider transferring the rental property into a protective irrevocable trust for you during his lifetime or through his Will at death. Either way, the trust could be designed to shelter the property from your future legal problems, such as divorce, bankruptcy, and creditors. A protective trust might also help your father feel more comfortable that the property will pass to his grandchildren at your death.

There are many options available to your father and many tax considerations. It would be a good idea for him to get the advice of an experienced Montgomery Estate Planning attorney before he takes any action.

More Planning Questions?

Transferring property 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: Avoiding the Pennsylvania Inheritance Tax Through Lifetime Transfers

I hope that this article was helpful in explaining options for planning ahead. 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!

Wills, Trusts, Probate, and Estate Litigation, It’s All We Do!

 

Tags:

Estate Planning, Estate Planning Attorney, Estate Planning Lawyer, Inheritance Tax, Montgomery County, Pennsylvania

Peter KlenkPeter Klenk

What Our clients are saying

Klenk Law Logo
Stars

Alan Kaplan

Peter has done our family's trust and estate work since our children were born. He is not only extremely knowledgeable and honest, but makes sure that our arrangements remain current with the changing legal landscape. I would give him my highest recommendation as a professional in his field.

Klenk Law Logo
Stars

Nafeesha. B

When it came down to picking the right attorney to handle my affairs, I knew right away it was this firm. From speaking to their secretary to speaking to Peter I knew I was making the right decision. After only a few mins Peter knew right away what I was looking for and handled all my questions professionally and even gave me great feedback that put my mind at ease. All that without even giving a single penny! So of course I hired him! So far so good...

Klenk Law Logo
Stars

Ellen G.

I have had Peter Klenk prepare and revise my will. Always professional, knowledgeable and offers great advice. Highly recommend

Klenk Law Logo
Stars

Glenn P.

Peter Klenk ESQ is a thoughtful and capable attorney who we work with on estate planning issues. His firm recently provided us with new Wills, Power of Attorneys and our instructions regarding major health issues. These documents are important for estate and life planning. Peter and his team are masters in the complexities of Estate Law. We highly recommend Peter and his Associates to provide thoughtful advice and outstanding work on these complex issues of the law. Make sure your estate planning documents are up to date, and Peter can be relied on to do an excellent job. Well done Peter!

Klenk Law Logo
Stars

Brian M.

Peter explained a complex subject very clearly, helped us to decide the best approach to managing our estate and then made it very easy for us to execute the required documents. He will be a valuable resource for years to come and clearly has a great understanding of estate law that will lead to innovative solutions for us. I would unhesitatingly recommend him for estate planning.

Let us put our expertise to work for you.

Free consultation within 24 hours.