Many people have been sleeping easier at night ever since January 2, when President Obama signed the American Taxpayer Relief Act of 2012 (ATRA) into law, thereby permanently setting the federal estate tax exemption to $5 million, indexed for inflation. This means that for many individuals there will be no federal estate tax payable if the individual dies with an estate that is under this large exemption amount (or double that amount for married couples). However, the elimination of federal taxation on these estates does not mean that estate planning should be ignored for tax purposes, since there may still be state inheritance/estate taxes to consider, such as is the case in Pennsylvania.
For Pennsylvania residents, the Pennsylvania inheritance tax is applicable to all estates, irrespective of the size. Unlike with the federal estate tax regime, Pennsylvania has no exemption amount, meaning that the first dollar of the taxable estate (gross estate less allowable deductions) is subject to tax. Thus, in order to properly structure the estate plan for any Pennsylvania resident, regardless of the size of his or her pockets, it is important to understand the ins and outs of the inheritance tax.
