When establishing an estate plan, there are several methods to conveying your interests and wishes to your loved ones through Wills, Trusts, beneficiary designations, and asset titling. Each has specific features and limitations, however one often overlooked component doesn’t arise until many years after you have passed away. This danger is the Pennsylvania Inheritance tax liability on “jointly” owned assets, specifically when real estate is involved.
Where real estate is involved, we need to distinguish between real estate owned as “joint ownership with rights of survivorship” and real estate owed as “tenants in common”. The former confers the immediate right to the surviving parties to inherit the real estate proportionately with the surviving owners. For example: a house owned between Mom, Dad, and Daughter, upon Mom’s passing, her 1/3 share is distributed equally between Dad and Daughter causing a Pennsylvania Inheritance Tax liability of 4.5% on the portion daughter inherited, however Dad and Daughter have immediate control and ownership of the property upon mom’s passing.
“Tenants in common” severs the ownership interest between the owning parties, and upon passing the portion owned by someone who passes away must go through probate, delaying the access to the property and limiting the immediately ability to sell or take out a loan. Keeping with our example, if the property is owned between Mom, Dad, and Daughter as tenants in common, and Mom passes, her 1/3 share would need to go through her estate and after inheritance taxes and all other expenses, Daughter and Dad may have access to the 1/3 share if it’s not spent on other costs.
While reviewing the benefits of adding family members to real estate deeds, majority tend to lean towards joint ownership with rights of survivorship with the primary focus on expediting the estate administration process to avoid probate, as well as reducing the Pennsylvania Inheritance Tax liability. However, the important factor many families forget to address is that upon their loved one’s passing, a Pennsylvania Inheritance Tax liability is created.
Having lost a loved one, the focus is on whether an estate needs to be probated. For assets titled jointly with rights of survivorship, we can avoid probating the estate and the family has immediately access to the ownership and control of the real estate, but that does not mean the Pennsylvania Inheritance Tax is not owed. If the Pennsylvania Inheritance Tax is not paid within the 9 months following the date of passing, then penalties and interest accrue. Most families only realize this outstanding liability when they go to sell the property or take out a loan against the property many years into the future, during which time the amount owed has only grown. In this instance, the beneficiaries can file a Non-Probate Pennsylvania Inheritance Tax Return to calculate the value of the asset as of the date of passing and pay the appropriate Pennsylvania Inheritance Taxes, providing clear title to the surviving family members into the future.
Mooney Law has decades of experience in Estates, Estates Planning, Estate Administration, and Elder Law. We are understand the complexities, complications, and sensitivities when dealing with appropriate paths for your family, whether it is planning for the future or after your loved one has passed away. Mooney Law offers free consultations for Estate matters. Call today at 717-200-HELP or 717-632-4656
