Estate taxes have the potential to significantly diminish the assets your heirs ultimately receive. For Pennsylvania residents, understanding how both federal and state rules may apply is an important step in protecting the wealth you’ve worked hard to build. With careful planning, you can mitigate unnecessary tax exposure and ease the burden on those you leave behind.
Because estate law is complex and subject to change, it is prudent to begin planning with clarity and intention. Defining your goals early, and thoughtfully considering how your assets should be distributed, can help ensure a smoother transition for your loved ones and greater alignment with your long-term wishes.
Does Pennsylvania Have an Estate Tax?
Pennsylvania does not impose its own estate tax, which means there’s no additional tax on the value of an estate beyond federal obligations. This simplifies matters for many families compared to states with a separate levy on top of federal obligations.
The following states and jurisdictions currently have a state-level estate tax:1
- Connecticut
- District of Columbia
- Hawaii
- Illinois
- Maine
- Maryland
- Massachusetts
- Minnesota
- New York
- Oregon
- Rhode Island
- Vermont
- Washington
Although Pennsylvania does not currently impose its own estate tax, owning property in one of these states or exceeding the federal exemption threshold may subject a portion of your estate to additional taxation. Legislative priorities may shift, so remaining attentive to policy developments allows your estate plan to stay current and responsive to future requirements.
Does Pennsylvania Have an Inheritance Tax?
While Pennsylvania does not levy an estate tax, it does impose an inheritance tax.
The following states and jurisdictions currently have a state-level inheritance tax:1
- Iowa (phasing out; full repeal scheduled for 2025)
- Kentucky
- Maryland
- Nebraska
- New Jersey
- Pennsylvania
The inheritance tax is paid by beneficiaries receiving assets from an estate, and the rate varies based on their relationship to the person who has passed.
Understanding the Difference Between Pennsylvania Estate and Inheritance Taxes
The terms “estate tax” and “inheritance tax” are often used interchangeably, which can create confusion about liabilities. In Pennsylvania, these are two distinct forms of taxation, each with its own rules and implications. Understanding the differences can help you assess your exposure and plan accordingly. Below is a closer look at each, including who may be subject to the tax, and how rates are calculated:
What Does Estate Tax Involve?
This charge is taken from the estate itself before distribution to beneficiaries. It is calculated on the total value of all holdings, including real estate. Only federal rules may apply because Pennsylvania does not levy a state-level fee.
What Does Inheritance Tax Involve?
This type of tax applies to each beneficiary’s individual amount—not to the estate itself. The inheritance tax rate depends on the heir’s relationship to the deceased person and can differ widely. If you’re required to file an inheritance tax return, you’ll typically need to report both real and personal property received as part of your inheritance.
Please Note: Transfers to a surviving spouse or from a child aged 21 or younger to a parent are exempt from inheritance tax. Direct descendants, including children and grandchildren, are taxed at 4.5%. Transfers to siblings are taxed at 12%, while all other beneficiaries—except charitable organizations, government bodies, and other entities exempt from inheritance tax—face a 15% rate.2
Federal Estate Tax and Its Impact on Pennsylvania Residents
Pennsylvania does not impose a state-level estate tax. However, the federal government still taxes estates valued above the federal exemption limit.
For 2025, the lifetime exemption is $13.99 million per person or $27.98 million for married couples.3 Married couples can also take advantage of portability, which allows a surviving spouse to use any unused exemption from their deceased partner. Amounts above this threshold may be taxed by the IRS, even if the estate owes nothing to Pennsylvania.
The federal estate tax is structured in brackets that start at 18% and climb up to 40%.4 These rates only apply to the portion of the estate above the exemption amount. Many families fall below this line, but those with extensive real estate, investment portfolios, or business assets could still trigger a tax due at the federal level.
Please Note: The current federal exemption was expanded under the Tax Cuts and Jobs Act (TCJA) but is set to shrink after 2025. Unless Congress acts, it will revert to about $7 million per person (or $14 million per couple) in 2026. Families with large Pennsylvania estates may want to revisit their plans before these changes potentially take effect.5
Key Considerations for Pennsylvania Residents Inheriting Property
Beneficiaries often need an appraisal to confirm the property’s fair market value. Because of this, inheriting a house or other property can carry hidden costs, including ongoing upkeep and local taxes. This figure helps determine inheritance charges and future gains if the asset is sold. Coordinating with other heirs is wise to avoid disputes over shared responsibilities.
Items that pass through the probate process may require court supervision before ownership transfers. During this stage, final bills are paid, debts are settled, and the decedent’s estate is distributed. That can lead to added legal steps and filing requirements. Clear documentation of outstanding loans or financial obligations helps keep the timeline as smooth as possible.
Pennsylvania provides a step-up in basis on appreciated assets, which sets the new cost basis to market value at the time of inheritance. This can reduce future capital gains if you eventually sell. Still, each heir should gather records of improvements, expenses, and date-specific valuations. Clarifying each detail upfront reduces surprises and helps you manage any taxes that arise.
Planning Strategies to Reduce Estate Tax Liability
A well-structured and thoughtful estate plan can significantly reduce the taxable value of your estate, helping to preserve more of your wealth for the people and causes that matter most to you. While there is no one-size-fits-all solution, implementing a combination of proven strategies can offer meaningful, long-term advantages.
Below are several planning options worth considering:
Annual and Lifetime Gifting
One of the most straightforward ways to reduce your estate is through annual gifts. In 2025, the annual gift tax exclusion allows you to give up to $19,000 per person to as many individuals as you wish—without tapping into your lifetime exemption ($13.99 million per individual in 2025).6 Over time, this can substantially lower the size of your taxable estate. Larger gifts can still be a strategic part of your plan, though they require filing a gift tax return and applying against your lifetime limit.
Direct Payments for Medical and Tuition Costs
Paying a loved one’s medical bills or education expenses directly to the provider is exempt from federal gift tax and does not count against your annual or lifetime gift limits. These payments can be a tax-efficient way to support family members while reducing your estate’s overall size.
Irrevocable Trusts and Other Structures
Irrevocable trusts are a common tool for moving assets out of your taxable estate. They can provide long-term structure for how assets are used, offer privacy, and sometimes protect beneficiaries from creditors. Some trusts also qualify for tax advantages depending on how they’re structured.
Charitable Giving Options
Donating to qualified charities—either during life or through your will—can lower your taxable estate. Certain strategies, such as charitable remainder trusts or donor-advised funds, can also provide income streams while supporting causes you value.
Professional Collaboration
Given the complexity and evolving nature of tax and estate law, working with a qualified estate planning attorney, accountant, and financial advisor is valuable for you and your heirs. These professionals can help you evaluate which strategies are most appropriate for your circumstances, ensure proper documentation, and keep your plan aligned as your life, and the legal landscape, continue to change.
Pennsylvania Estate Tax FAQs
1. Are all estates taxed in Pennsylvania?
No, Pennsylvania doesn’t impose its own estate tax. That being said, if an estate’s total value surpasses the federal exemption amount, it may still face federal estate tax. Only the amount above that limit is taxed, with rates ranging from 18% to 40% based on the size of the taxable portion.
2. What about estates with out-of-state property?
For federal estate tax purposes, all assets owned by the decedent, regardless of location, are included in the estate’s total value. That means out-of-state property is counted the same as property located in Pennsylvania.
3. Does jointly owned property count toward the federal estate tax threshold?
Yes, for federal tax purposes, the deceased’s portion of jointly held property is included in the gross estate. The amount included and how it is treated depends on the legal form of ownership, such as Joint Tenancy with Right of Survivorship (JTWROS), Tenancy in Common (TIC), or Tenancy by the Entirety (TIE). For spouses, this typically means including 50% of the property’s value, unless a different ownership structure can clearly be proven.
Preparing Your Estate Plan in Pennsylvania
Creating a will allows you to clearly outline how you want your property distributed and who should carry out those wishes. It also allows you to name guardians for minor children. Significant life events—such as getting married, divorced, or welcoming a child—warrant a review and update of your will to match your current wishes. Without a valid will in place, Pennsylvania’s intestacy laws will dictate how your estate is distributed.
Organizing your financial records, account information, and beneficiary designations will make the estate administration process more efficient. Keeping a list of important documents and contacts—such as insurance policies, retirement accounts, and property deeds—helps assure you that nothing is overlooked. Some families choose to use revocable or irrevocable trusts to manage assets during life and streamline the transfer process after death.
Estate planning isn’t a one-time task. It’s important to revisit your documents periodically to make sure they still reflect your goals and comply with current law. This may include reviewing your power of attorney, healthcare directive, or trust instructions. Even modest changes in your financial situation or family structure can warrant updates. Keeping your plan current helps to minimize the burden on loved ones and confirms your wishes are clearly understood and carried out.
Let Us Help You With Your Tax Planning in Pennsylvania
While Pennsylvania does not impose a state-level estate tax, estate planning remains an important process—especially for families with substantial assets or complex circumstances. Federal estate tax thresholds, evolving regulations, and the intricacies of asset transfer all warrant thoughtful attention. Establishing a clear plan today can ease future responsibilities for the people you care about.
At Rockwood Wealth Management, we help you navigate this process with clarity and purpose. Our team collaborates closely with your estate planning attorney and accountant to ensure all aspects of your plan are fully aligned—or, if needed, we can connect you with trusted professionals from our established network. Every element of your estate strategy should work in concert, and we’re here to help you bring those pieces together.
If you’re ready to take the next step toward a more confident and coordinated estate plan, we welcome the opportunity to speak with you. Schedule a complimentary consultation, and let’s begin building a structure that reflects your values and secures your legacy.
Resources:
- https://taxfoundation.org/data/all/state/estate-inheritance-taxes/
- https://www.pa.gov/agencies/revenue/resources/tax-types-and-information/inheritance-tax.html
- https://www.kiplinger.com/taxes/gift-tax-exclusion#:~:text=Additionally%2C%20the%20lifetime%20estate,federal%20estate%20and%20gift%20taxes
- https://www.usbank.com/wealth-management/financial-perspectives/trust-and-estate-planning/estate-taxes.html
- https://www.lpl.com/content/dam/lpl-www/images/advisor-campaigns/private-wealth/private-wealth-the-sunset-of-the-fed-estate-tax-exemption.pdf
- https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2025
Jeff Llewellyn
Advisor Jeff Llewellyn, CERTIFIED FINANCIAL PLANNER®, is also a father to an adult daughter with autism. He combines technical expertise, lived experience, and genuine empathy to help families navigate special needs planning, estate strategies, and government benefits. Jeff has guided hundreds of families in establishing estate plans, including establishing special needs trusts and structuring wealth transfers while preserving benefits like SSI, SSDI, Medicare, and Medicaid. A compassionate and knowledgeable guide, Jeff helps families plan with confidence and clarity.