My small pension

[connie333]

What is the name of your state (only U.S. law)? PA

I am single with no children. I want to leave whatever money I have left to my three siblings. Is it best to put this money into my REVOCABLE TRUST or add them as BENEFICARIES now? Will they have to pay INHERITANCE TAXES on the money---we are talking a total of $100K divided by three.

Also, I wish to name one sister as BENEFICIARY of whatever remains upon my death. (Total value now is only $16K and I am 57 and not drawing the $50 a month I am entitled to as yet). Will she have to pay INHERITANCE TAXES on this money as well?

Thank you kindly,
Connie

 

[anteater]

This is somewhat confusing. You are talking about two different things, aren't you? Assets that you own right now of about $100K? And some sort of pension plan?

Basically, most everything except life insurance proceeds is subject to the PA inheritance tax. For siblings the rate is 12%.

If the sister would be entitled to a lump sum from the pension plan, then that would be subject to the inheritance tax.

 

[TrustUser]

hi anteater,

do many states have their own inheritance tax ? that is, separate from the federal estate tax ?

 

[anteater]

Most states have their own estate tax on the books. Most of those states had their estate taxes tied to the federal estate tax. They had what is known as a "pickup" estate tax. The federal estate tax allowed a credit for any state estate taxes owed. Therefore, most state estate taxes said, in essence, "If you owe the feds, take the max credit for state estate tax available in your situation and send it to us instead of Washington."

The changes in the fed estate tax over the last couple years eliminated the credit for state estate taxes. That leaves the states with pickup-type estate tax statutes on the books that mean nothing.

Some states did what is known as "decoupling" from the federal estate tax, saying, in effect, "Act as if there is still a state estate tax credit for federal estate tax purposes." Or re-wrote their estate tax to allow only an exemption for the amount the feds exempted in a certain year.

So now, it is all over the board. Some states abolished their's completely. Some states decoupled from the feds. Some never were coupled to the feds and still have their estate tax. And some, probably the majority, technically still have one. But, due to the disappearance of that state estate tax credit on the federal estate tax, are in the deep freeze.

There are maybe 10 states (forget the exact number) that also have an active inheritance tax. PA inheritance tax may be the most onerous, excluding only life insurance proceeds and exempting only assets transferring to surviving spouses. (Technically, only assets owned jointly with the surviving spouse are exempt. But, separately-owned assets transferring to a surviving spouse are taxed at a 0% rate. Figure that one out.) The rates are 4.5% for lineal descendants, 12% for siblings, and 15% for anybody else.

However, unless you are Tony Soprano with most assets stashed well out of sight, Jersey is a tough state to be a resident of when you pass away. A decoupled estate tax with a credit for only the tax due on the first $675K of value. And an inheritance tax, although at least transfers to spouses and lineal descendants are exempt.

 

[connie333]

Thank you again for your wonderful expertise...you have helped me immensely!

Take care,
Connie