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Pa State Inheritance tax liability

Lebanon, PA |

1. My parents transferred their farm to the four children 12 years ago and the parents continued to live on the farm til their death this year. Are the children liable to pay Pa State inheritance tax on the farm that they already owned for 12 years???....
2. If the children are liable to pay the pa state inheritance tax will it be the value of the farm 12 years ago or as of the date of death??...
3. I understand there was a case similar to this escalated to the tax court but we don't have the case # and it was supposedly passed on with a stepped up basis thus eliminating capital gains... Are you familiar with this case???

Attorney Answers 4

  1. Best answer

    With all due respect to the prior attorneys, they have given you the wrong answer. PA will attempt to tax this asset at the date of death value. Their position is that there was a reservation of a life estate interest. The cases state that the only way around this is if a you were chargin them a fair market value rental.

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    Mr. Fromm is licensed to practice law in PA with offices in Philadelphia and Montgomery Counties and services clients throughout the state of Pennsylvania. He can be reached at 215-735-2336 or at the email address listed below. He is rated as an AV Preminent attorney from Lexis-Nexis Martindale Hubbell having the received the highest possble rating in legal ability and ethical standards. In addition, he has received a 10.0 rating from AVVO and recently was featured as a 5Star Wealth Manager in the Philadelphia Magazine, November 2009 issue on page 123.
    Mr. Fromm is ethically required to state that the response herein is not legal advice and does not create an attorney/ client relationship. Also, there are no recognized legal specialties under Pennsylvania law. Any references to a trust, estate or tax lawyer refer only to the fact that Mr. Fromm limits his practice to these areas of the law. These responses are only in the form of legal education and are intended to only provide general information about the matter within the question. Oftentimes the question does not include significant and important facts and timelines that if known could significantly change the reply or make such reply unsuitable. Mr. Fromm strongly advises the questioner to confer with an attorney in their state in order to ensure proper advice is received.
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  2. If the farm was transferred to you during your parents life it was a completed gift at the time of the transfer and a gift tax return was due. When your parents file their estate tax return, all prior gifts will have to be accounted for.

    Any individual seeking legal advice for their own situation should retain their own legal counsel as this response provides information that is general in nature and not specific to any person's unique situation. Circular 230 Disclaimer - Advice given in this response cannot be used to eliminate penalties with the IRS or any other governmental agency.

  3. The title did not transfer by way of inheritance so there is no inheritance tax as a result.

    THESE COMMENTS ARE NOT LEGAL ADVICE. They are provided for informational purposes only. Actual legal advice can only be provided after consultation by an attorney licensed in your jurisdiction. Answering this question does not create an attorney-client relationship or otherwise require further consultation.

  4. Absent some facts not included in your question it would appear this was a completed gift 12 years ago and thus no inheritance tax would be due. The downside to that treatment is you do not get stepped-up basis, but rather the children take a carryover basis (i.e. they take their father's basis in the property) and may have significant capital gains tax due upon sale of the property. Your CPA can help advise you in that regard.

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