How to Reduce Estate Taxes in PA

Contact our real estate attorneys for help in lowering taxes for beneficiaries. We serve Berks, Lehigh, Northampton, Bucks, Montgomery, Philadelphia, Chester, Delaware, Lancaster, Lebanon, Dauphin, Schuylkill, York, Carbon, Luzerne, Monroe, Columbia and Northumberland counties.

For many, a crucial goal of estate planning is ensuring that their beneficiaries are cared for upon their death. Unfortunately, many assets passed from the deceased to the beneficiary are subject to various taxes, lowering the amount beneficiaries receive, especially with larger estates. However, an experienced Estate Planning Attorney can help minimize the impact of taxes on your beneficiaries.

Potential Taxes Imposed on Inheritances

Many factors determine the taxes imposed on an inheritance, such as the state the deceased lived in and the estate's value, but here are four taxes an inherited estate may be subject to.

Estate taxes are taken out of the deceased's assets before they are distributed to their beneficiaries. At present, the federal estate tax only applies to estates worth more than $12.92 million.

An inheritance tax is imposed in Pennsylvania. The Pennsylvania Department of Revenue explains, "Inheritance tax is imposed as a percentage of the value of a decedent's estate transferred to beneficiaries by will, heirs by intestacy, and transferees by operation of law. The tax rate varies depending on the relationship of the heir to the decedent."

These are the inheritance tax rates in PA:

0% on transfers to a surviving spouse or to a parent from a child aged 21 or younger;
4.5% on transfers to direct descendants and lineal heirs;
12% on transfers to siblings; and
15% on transfers to other heirs, except charitable organizations, exempt institutions, and government entities exempt from tax.

Capital Gains Tax

When a beneficiary sells an inherited asset, they may be subject to a capital gains tax, a federal tax imposed on the sale of assets such as houses or stocks. The rate of taxation can be zero, 15%, or 20%, depending on your taxable income for the year you sell the asset. PA also imposes a capital gains tax. Both federal and state laws also have the "step-up in basis" tax rule, which may reduce the tax implications.

Income Tax

Typically, an inheritance is not subject to income taxes. The exception is assets in pre-tax (or tax-deferred) accounts, such as traditional IRAs and 401(k)s. You can roll inherited pre-tax accounts into a pre-tax account, delaying your tax obligation until you withdraw the money.

Strategies to Reduce Estate Taxes

Every estate and every situation is unique, so it's best to consult with one of the experienced Estate Planning Attorneys at Bingaman Hess. Here are a few strategies they may recommend.

Create an Irrevocable Living Trust

A living trust is a legal document that allows you to transfer ownership of your assets into a trust account and assign management to a trustee (an individual or entity) on behalf of your beneficiaries. Living trusts can be revocable or irrevocable. An irrevocable living trust cannot be changed (unless all beneficiaries agree) or revoked, giving you significantly less control. However, an irrevocable living trust has several advantages, such as minimizing estate taxes.

Set up Joint Accounts

If you set up a joint account with someone else, perhaps an adult child, they will be taxed on half of the amount in the account rather than the total amount as long as it was set up at least one year before your death.

Gift Your Assets to Your Children

You can give your children monetary gifts while you're still alive to help avoid paying inheritance tax. Currently, you can give your children an annual gift of $18,000 without reporting that gift. PA does not impose a gift tax.

Buy Life Insurance

You can convert some of your non-life insurance assets into life insurance policies because death benefits from a life insurance policy are not subject to the PA inheritance tax.

Convert Traditional IRAs to Roth IRAs
It will cost you to convert a traditional IRA to a Roth IRA; however, the income tax will be paid before you die, reducing your taxable estate.

Purchase Real Estate Outside of Pennsylvania

Pennsylvania only taxes assets located in Pennsylvania, so if you purchase a beach house or other real estate outside of PA, it won't be subject to PA's estate tax. However, it may be subject to taxes imposed in the state where the property is located.

Consider Estate Planning Before It's Too Late

Continuing to ignore or put off the inevitable will only cause undue stress and expenses for your family when (not if) you do pass away. If you don't create your estate plan today, tomorrow may be too late. Do it now while you can make those important decisions to protect your family and yourself.

Get started today by calling us at 610.374.8377 or find us online.

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Business Succession Planning

By Mahlon Boyer • May 30, 2026

Business succession planning is an important process that helps business owners prepare for the upcoming transfer of ownership and leadership. Whether the transition involves passing the company to family members, selling to business partners or transferring ownership to outside buyers, having a clear succession plan helps reduce uncertainty and protect the long-term security of the business. A careful plan can also minimize disputes, preserve business value and ensure continuity in periods of change. Planning for Business Transfer The first step in business succession planning is identifying how the business will be transferred and who will assume control. Business owners should evaluate their long-term goals, retirement plans, and the financial needs of both the company and their family members. Some owners choose to pass the business on to children or relatives who are already involved in operations. Others may transfer ownership to key employees, business partners or third party buyers. Each option has different legal, operational and financial consequences. A successful transition often takes years of preparation. Potential successors may need leadership training, operational experience and gradual increases in responsibility to ensure they are ready to effectively manage the business. Good communication with family members, partners and stakeholders is also important to avoid misinterpretations and conflict. Business owners should work with legal and financial professionals to create formal succession documents, update corporate records, and establish a realistic timeline for the transfer process. Use of Buy-Sell Agreements Buy-sell agreements are an essential part of many succession plans. These legally binding agreements specify what happens to the interest of a business owner if certain events occur, such as retirement, disability, death or voluntary departure from the company. A buy-sell agreement typically defines who may buy the shares of the departing owner, how the business interest will be valued and the terms of payment. This structure helps maintain stability and prevents ownership disputes that could disrupt operations. For businesses with multiple owners, buy-sell agreements provide understanding and protections for all parties involved. They can prevent unwanted external ownership and ensure that remaining owners retain control of the company. Funding mechanisms are also important. Many businesses use life insurance policies to fund buyouts in the event of an owner's death. This allows surviving owners or family members to complete the transfer without putting financial hardship on the business. Tax Considerations Tax planning is an important part of business succession planning. If the transfer of ownership is not well planned, the business owner and successor will face a substantial tax liability. Depending on how the transfer takes place, the owners may face capital gains, estate, or gift taxes. With good planning, these tax burdens can be reduced with trusts, step-by-step ownership transfers, family partnerships, or changing the type of business entity. Another important factor is valuation. A proper valuation of a business is important for determining tax liability and ensuring that everyone involved in the transfer is treated fairly. Business owners should regularly review their succession plans with accountants, tax advisors, and attorneys, as tax laws are often changing. Regular updates keep the plan in line with changing legislation and the business’s needs. Let Us Help You Navigate the Essentials of Business Succession Planning Don’t wait! Talk to one of the experienced estate planning attorneys at Bingaman Hess today at 610.374.8377 or contact us online. This article is for informational purposes only and does not constitute legal advice. No one may rely on this information without consulting an attorney. Anyone who attempts to use this information without attorney consultation does so at their own risk. Bingaman Hess is not and shall never be responsible for anyone who uses this information. It is not legal advice.