If the estate is mostly a house, the useful question is whose name is on the deed, and whether anyone can pay the Pennsylvania inheritance tax without selling.

This page is general information about Pennsylvania inheritance tax on real estate. It is not legal advice, and it is not tax advice. The rates and deadlines below come from the Pennsylvania Department of Revenue. Confirm them on the Department's inheritance tax page before you calendar a payment or sign a deed.

Start with the deed

Before anyone talks about gifting the house or adding a child, this office wants the recorded deed. The planning questionnaire asks for the deed, the current will, any trust, life insurance policies, and a recent tax return. Those papers show who owns the house today and whether a transfer already happened. A tax bill does not show how title is held.

That meeting is a planning meeting. It is not the packet you take to the Register of Wills after a death. What to bring to the planning meeting is its own page. The first 90 days after a death, including letters and the tax calendar, is another. Do not use this page as a probate checklist.

What the Department of Revenue taxes

Pennsylvania inheritance tax is a percentage of property transferred at death. The rate depends on who receives it. The Department's inheritance tax page lists these rates:

0 percent on transfers to a surviving spouse, or to a parent from a child aged 21 or younger.

4.5 percent on transfers to direct descendants and lineal heirs.

12 percent on transfers to siblings.

15 percent on transfers to other heirs, except charitable organizations, exempt institutions, and government entities exempt from tax.

The Department's brochure, REV-584, also lists 0 percent on a transfer to or for the use of a child aged 21 or younger from a parent. Pennsylvania does not publish a large dollar exemption that takes an ordinary house off the return. A house left to adult children is in the 4.5 percent class. The same house left to a niece, nephew, or friend is in the 15 percent class. Federal estate tax is a separate set of rules. This page does not state them.

For a Pennsylvania resident, real property located in Pennsylvania is taxable. For someone who lived elsewhere, a house in Pennsylvania can still be taxable here. Intangible property of a nonresident is not, according to REV-584. A house in New Jersey is a different tax. If the family owns in both states, use the two-state property page and the New Jersey inheritance tax page. This article stops at Pennsylvania and New Jersey.

The tax is a cash bill

The Department says the tax is due at death and becomes delinquent nine months after the date of death. If it is paid within three months, a 5 percent discount applies. REV-584 is more precise: the discount is 5 percent of the tax paid or the tax due, whichever is less. The house itself does not produce that cash. A mortgage and other debts the person still owed at death reduce the value that is taxed. Funeral expenses and the costs of administering the estate are deductible. Those deductions do not create cash.

Life insurance proceeds on the life of the decedent are exempt from this tax. The Department said so in letter ruling INH-10-002, citing 72 P.S. § 9111(d). A policy can be how the family pays the bill. It does not take the house off the return. That same ruling holds that an annuity which is really an investment account is not life insurance. Whether a policy should be owned by a trust is usually a federal question, and this page will not guess at it.

For a Pennsylvania resident, REV-584 says the return is filed with the Register of Wills in the county where the person lived. For a nonresident with a Pennsylvania house, the brochure says the return goes to the register in the county where the property sits if letters are issued there, or directly to the Department if letters come from outside Pennsylvania. The first 90 days page is the place for the rest of that calendar.

Adding a name to the deed

Joint ownership with right of survivorship can skip a probate petition. It does not skip this tax by default.

Property owned jointly between spouses is exempt. That is the Department's current page. REV-584 uses the older phrase, husband and wife.

For other joint owners, REV-584 says the taxable share is the property's value divided by the number of joint owners at death.

If the decedent created that joint interest within one year of death, the brochure says the full value is taxable, less $3,000.

Adding a child to the deed can shrink the share taxed later. It also makes that child an owner now. The house can be reached by that child's creditors or in a divorce, and a later sale or refinance needs that child's signature. Read the recorded deed before anyone adds a name.

A gift is a recorded deed

A completed lifetime gift can change what is taxed later. A deed that leaves the giver the right to live in the house is a different document. Do not tell the family the house was already given away until someone has read the deed date and what rights were kept. The one-year rule this page will cite is the joint-interest rule in REV-584. It is not a blanket rule for every gift.

Farmland is a narrow exemption

The Department says certain agricultural real estate can be exempt for deaths after June 30, 2012, if it passes to eligible family. Informational Notice Inheritance Tax 2012-01 says the business-of-agriculture exemption requires the land to be devoted to agriculture at death, to pass to members of the same family, to stay in that use for seven years, and to produce at least $2,000 of agricultural gross income in each of those years. Each owner files an annual certification for those seven years. The notice says a house on a parcel that otherwise qualifies is presumed to be used in the business of agriculture. A suburban house is not this exemption. Land leased to someone outside the family, or used for something other than agriculture, is outside it too. Read the notice before anyone claims it.

What this page will not pretend

It will not promise that you can avoid the tax, and it will not tell you to add a child to the deed this month. A New Jersey house is not a Pennsylvania return. A rental held in a company is not automatically a family-business exemption. The Department has a separate schedule for that claim. This page will not invent the tests on that schedule. Rates and forms change. The Department's page controls.

What to do next

If the person is alive and the question is the house, bring the deed, the will or trust, the life insurance, and a recent tax return. That is a planning meeting. If the person has died, the next useful step is the Register of Wills calendar on the first 90 days page.

Ravenell Law handles estate planning and estate administration in Pennsylvania and New Jersey, from Elkins Park. William Ravenell reviews planning documents before they go out the door. If the question is the house, send the deed ahead of the meeting.