By Joseph J. Kenneff, Lancaster, PA attorney

When a loved one dies, the question I hear most often from Lancaster, PA families isn't about the will. It's "Do we owe tax on this?" Pennsylvania is one of the few states that still has an inheritance tax, and many estates in Lancaster County owe some of it. Here's a plain-language overview of how the tax works, what it costs, and when it's due.

What the Pennsylvania inheritance tax is

The Pennsylvania inheritance tax is a tax on property that passes from someone who has died to the people who receive it. It applies whether the property passes under a will, under the intestacy rules when there is no will, or by "operation of law," such as certain jointly owned accounts. The rules are in the Inheritance and Estate Tax Act, found at 72 P.S. § 9101 and following.

Unlike the federal estate tax, which affects only very large estates, the Pennsylvania tax has no large exemption amount. A modest estate left to children can owe tax.

The rates depend on who inherits

The rate is set by the beneficiary's relationship to the person who died (72 P.S. § 9116). According to the Pennsylvania Department of Revenue, the current rates are:

• 0% on transfers to a surviving spouse, and to a parent from a child aged 21 or younger
• 4.5% on transfers to direct descendants and lineal heirs, such as children and grandchildren
• 12% on transfers to siblings
• 15% on transfers to other heirs, such as nieces, nephews, cousins and friends

Transfers to qualifying charities, exempt institutions and government entities are not taxed. Property owned jointly by spouses is also exempt.

So a $200,000 estate left to a spouse owes no inheritance tax, while the same estate left to a nephew could owe 15% of its taxable value. That difference is one reason estate planning matters.

Common exemptions

Several kinds of property are not subject to the tax, including:

• Life insurance proceeds paid to a named beneficiary
• Qualifying farmland and agricultural property transferred to eligible family members, an exemption that matters to many Lancaster County farm families and that has its own requirements
• Personal property of a service member who died from an injury or illness received while on active duty, for deaths on or after September 6, 2022

Each exemption has conditions, so it's worth confirming how they apply before you file.

When the tax is due, and the 5% discount

The tax is due at the date of death and becomes delinquent nine months later. The inheritance tax return (Form REV-1500) is due on the same nine-month schedule. Interest runs on late payments.

There is a reward for paying early. If the tax is paid within three months of the date of death, the estate receives a 5% discount on the amount paid (72 P.S. § 9142). Many executors make an estimated payment within that window, even before every figure is final, to lock in the discount.

Where to file in Lancaster County

For a person who lived in Pennsylvania, the return and payment go to the Register of Wills in the county where the person lived. For a Lancaster County resident, that is the Lancaster County Register of Wills in the city of Lancaster. The Register acts as an agent of the Department of Revenue, which reviews the return and issues a notice of appraisement. Disputes about an estate's administration are heard by the Orphans' Court Division of the Lancaster County Court of Common Pleas.

If no executor or administrator has been appointed, the people who receive the property are responsible for filing and paying the tax.

How planning can help

Because the tax depends on who inherits and what they receive, thoughtful planning can make a real difference. A will or trust, carefully chosen beneficiary designations, life insurance and, for farm families, attention to the agricultural exemption can all affect what your family ultimately pays. Planning also helps your executor meet the deadlines without stress.

Talk with a Lancaster, PA estate attorney

At Goodman & Kenneff, I help executors in Millersville, Lancaster city and townships across Lancaster County prepare inheritance tax returns, plan around the three-month discount and settle estates in an orderly way. I also work with families who want to plan ahead. To talk about your situation, call our office at (717) 872-4605 or book a consultation. You can also read more about our probate and estate administration practice.

This article is general information about Pennsylvania law, not legal advice. Reading it does not create an attorney-client relationship. Every estate is different, so please consult an attorney about your situation.