Pennsylvania Estate Planning Considerations
Pennsylvania is a Common Law State, which means the rules governing the ownership, division, and inheritance of income and property acquired by a husband or wife during their marriage hold that subject to various qualifications, each spouse owns and has complete control over their own her income and property.
Last Will and Testament
The minimum age of a person competent to make a will is 18. The number of witnesses necessary to execute a will is two.
Uniform Transfers to Minors Act (UTMA)
The custodial arrangement terminates when:
- The minor child reaches age 21 for custodial transfers made by irrevocable lifetime gift, will, trust, or exercise of a power of appointment.
- The transfer can be delayed until the child reaches age 25 if specified in writing.
- The minor child reaches age 18 concerning other custodial transfers.
- The minor child dies.
Dying without a Last Will, the Pennsylvania Laws of Intestacy
The estate goes to the surviving spouse, as follows:
- If there are no surviving descendants or parents, —100% of the estate
- If one or both parents survive, but there are no surviving descendants—the first $30,000 plus 50% of the balance of the estate
- If all surviving descendants are also descendants of the spouse—the first $30,000 plus 50% of the balance of the estate
- If one or more of the decedent’s surviving descendants are not descendants of the spouse, —50% of the estate
If there is no surviving spouse, or if a portion of the estate does not go to the spouse:
- 100% to descendants (descendants’ representation is not mentioned but is clarified under 20 Pa.C.S. §2104(1), (2))
If there is no surviving spouse or descendant:
- 100% to surviving parent or parents equally
If there is no surviving spouse, descendant, or parent:
- 100% to the descendants of each of the decedent’s parents (descendants’ representation is not mentioned but is clarified under 20 Pa.C.S. §2104(1), (2))
If none of the above:
- Intestacy laws outline further distribution steps to the level of grandparents, related individuals, and their descendants. See 20 Pa.C.S. §2103(4), (5).
- If no legally described recipient can be found, estate assets go to the Commonwealth of Pennsylvania.
Pennsylvania Trust Laws
The following table outlines the basics of Pennsylvania’s trust laws.
Pennsylvania Consolidated Statutes: Title 20, Chapter 77 – Trusts
Definition of Trust
When a person – referred to as a “settlor,” “grantor,” or “trustor” – transfers the legal title of the property to a trustee for the benefit of a beneficiary, a trust is created. The trust provides terms for how the trustee is to administer the trust.
Definition of Trustee
The trustee is the person responsible for administering the trust. The trustee must act in good faith and the best interests of the beneficiary. The trustee also has various duties and powers given to him or her by law.
Definition of Beneficiary
The beneficiary is the person or institution that receives the benefits from the trust. A trust can be created without a definite beneficiary if it’s a charitable trust, a trust to care for a pet, or a non-charitable trust.
The Pennsylvania state legislature has introduced, but not yet passed, the Revised Fiduciary Access to Digital Assets Act to ensure that testators can retain control of their digital property and plan for its ultimate disposition.
Pennsylvania imposes an inheritance tax. The inheritance tax rate and exemption amount depend on the relationship between the decedent and the beneficiary.
Unlimited exemption for transfers to a surviving spouse or transfers from a deceased child (under age 21) to a parent.
Unlimited exemption for life insurance proceeds.
Class A beneficiaries include parents, grandparents, lineal descendants, sons-in-law, and daughters-in-law. The exemption amount for these transfers is $3,500. The flat tax rate on the excess is 4.5%.
Class B beneficiaries include siblings (including half-siblings but not stepsiblings). No exemption amounts. The flat tax rate is 12%.
Class C beneficiaries are all other persons. No exemption amounts. The flat rate is 15%.
Credit Estate Tax
Pennsylvania imposes an estate tax equal to the maximum credit allowed under the federal tax code for paid state estate and inheritance taxes under I.R.C. Sec. 2011. However, the current federal tax code does not permit a credit for paid state estate or inheritance taxes. Therefore, there is no credit estate tax in effect at this time.
Generation-Skipping Transfer Tax (G.S.T. Tax)
Pennsylvania does not impose a G.S.T. tax.
Pennsylvania does not impose a gift tax.