Q: In PA, Can non-probate inheritances be filed on a separate inheritance tax return from the return filed by the estate?
e.g., An estate is established, no will exists. Probate (and some non-probate) items will be included on the Inheritance Tax Return filed for the estate. There also exist some non-probate items with beneficiaries named (e.g. IRA, annuities). Can the beneficiary file their own Inheritance tax returns for these items, or must they appear on a single return filed by the estate?
A:
In PA, the "estate tax" is levied upon the fair market value of the benefit distributed. Usually, the Will provides that the Estate will pay all debts, and that includes the tax on bequests. Once paid, the distributed benefit gets the "stepped up basis" to its fair market value in the hands of the beneficiary.
That said, while the Estate is obligated to pay all taxes and other debts, any beneficiary is free to pay, itself, any tax that may be imposed, rather than have the Estate pay it. Speak to an accountant, and an experienced PA estate lawyer, about your wisest path forward.
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