When someone dies in Pennsylvania, the state's inheritance tax generally applies to asset transfers at a tax rate ranging from zero to 15 percent, which is determined by the relationship of the recipient to the one who has died.
But certain asset transfers are exempt, and in July, the state added a new exemption centered on family-owned businesses. However, certain conditions must be met:
The business must have been in existence five years prior to the owner's death, the net book value of its assets must be less than $5 million, and the business must employ fewer than 50 full-time equivalent workers.
Further, only the decedent's spouse, lineal descendants, siblings, siblings' lineal descendants, ancestors and ancestors' siblings are eligible recipients under the tax exemption.
The recipient must continue to own the transferred interest for a minimum of seven years after the decedent's death.
If these conditions aren't met, the exemption will be lost, and the recipient will be responsible for paying back tax plus interest.
This new exemption takes into account those who may consider making transfers in advance of death to avoid the inheritance tax. If a business owner adds property to a family-owned business less than one year prior to death, that property will be subject to the inheritance tax unless it was added for a legitimate business purpose.
This, of course, is subject to review.
-- Shannon L. Crew
Director, Houston Harbaugh, P.C.
Business Workshop is a weekly feature from local experts offering tidbits on matters affecting business. To contribute, contact Business Editor Brian Hyslop at firstname.lastname@example.org.