Estate Planning 101

Large EstateWhen it comes to estate planning, many individuals are intimidated by the seeming complexity of the subject. Here are a few pieces of information that may simplify the process for you.

Federal Estate Tax

As a starting point, you should be aware that any assets that are either titled jointly with your spouse, or are left by Will to your spouse, will pass free of any federal or state inheritance tax.

Any assets that are titled jointly with your spouse will pass by what is known as “operation of law,” and there will be no need to involve the probate process in order for the surviving spouse to receive them.

One potential problem with leaving the entirety of your estate outright to your spouse can be that your children will not be guaranteed to receive a portion of your estate. It is for this reason that many individuals consider the creation of a trust, in which their spouse could receive the income from monies they leave upon their passing for their life, with the balance to be divided among their children.

Remembering that any funds that you leave to your spouse outright will not be taxable, the Federal Tax Reform Act has now greatly enhanced the amount of money required to be left in an estate before there will be federal tax consequences. As of 2017, that individual limit is in the amount of $5.49 Million. What this means is that the first $5.49 Million of your estate not passing to your spouse would be exempted from federal taxes.

Additionally, the concept of “portability” was likewise introduced. Portability allows a surviving spouse to take advantage of any unused portion of the estate tax exemption of their late spouse. Basically, what that means is that if a husband dies first and does not utilize any of his $5.49 Million exemption in his lifetime through gifting, then $10.9 Million would be available to his surviving wife before any federal tax consequences would take effect. Obviously, this places many estates outside the range of federal taxation rates, which are still in the 40% bracket.

Additionally, the gift tax exemption has been increased, and unified with the exemption limits, so that each individual now has a lifetime exemption of $5.49 Million per person.

From a fundamental standpoint, this means that you can gift up to $5.49 Million of your estate while you are living and there will be no federal gift tax imposed, although the gifting of these funds would reduce the amount of unified credit you would have available for your final inheritance tax return.

Additionally, many individuals are familiar with the concept of the availability of gifting $14,000 per person per year without it impacting the above-described $5.49 Million unified credit That gifting allowance remains in force.

This federal taxation has been somewhat of a political football; however, most analysts agree that the $5.49 Million per person, and $10.98 Million exemption with portability, is likely to remain in the near future.

Individuals should be aware that included in their federal estate will be any cash, stocks, bonds, retirement or 401K plan proceeds, annuities, and, most importantly, life insurance proceeds.

Pennsylvania Inheritance Tax

The tax rates imposed by the Commonwealth of Pennsylvania are far below those of the federal rates, but planning considerations are of importance for estates below the federal limit.

Once again, any assets passing between a husband and wife will be exempt from Pennsylvania inheritance tax imposition.

The State imposes tax on bequests to children at the rate of 4.5% of the net estate, 12% for other family relatives, and 15% for other individuals to whom bequests are made. An exception to this tax would be funds left to charity, for which there is no Pennsylvania or, for that matter, federal tax imposed. Pennsylvania has no exemption amount, so that estates of any size left to a non-spouse will be responsible for payment of state inheritance tax.

Pennsylvania has an additional distinguishing feature, in that life insurance proceeds are not considered a part of an individual’s estate for purposes of taxation.

Finally, only assets that are held within the Commonwealth of Pennsylvania are taxed at this rate, so that, for instance, if an individual owns real estate outside of Pennsylvania, it would not be included in his Pennsylvania Inheritance Tax Return.


Very briefly, probate is the process by which a Will is formally admitted into the Pennsylvania inheritance tax system. This allows the executor of the estate to act on its behalf through the issuance of letters testamentary, commonly referred to as “Short Certificates.” Individuals should be aware that both federal and state tax obligations must be completed within nine months from the date of an individual’s death.

It is for this reason that acting on the admission of a Will into probate within a reasonable period of time following an individual’s death is important.

Estate planning and estate administration can be a somewhat complicated process, and if you have questions, please call us at 610-565-4055 or e-mail us with your specific questions!