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Pennsylvania Inheritance Tax

The Pennsylvania inheritance tax is a tax upon the privilege of inheriting
property. Generally, all property owned by a decedent at death, which passes by
Will, intestacy or by operation of law, is subject to inheritance tax. Although the
tax is technically imposed against the people who are inheriting from the
decedent, the personal representative of the estate is generally responsible for
filing the proper inheritance tax return and paying the tax that is due.

Intestacy means that an individual has died without a Will or with a Will that fails
to distribute all of that individual's property. The Pennsylvania Probate Estate and
Fiduciaries Code identifies those individuals who will inherit if there is no Will.

Some transfers are not subject to the Pennsylvania inheritance tax. Transfers
which are not subject to the tax include: transfers to the government, transfers to
qualified charities, and transfers to veteran's organizations. In addition, a few
assets are exempt from tax. These include life insurance proceeds (but not
annuities), lump sum social security death payments, and certain employment
benefits. Effective January 1, 1995, and for all decedents dying after January 1,
1995, transfers of property from the decedent spouse to a surviving spouse are
taxable at the rate of 0%. Although no tax may be due, a tax return must still be
filed for most Pennsylvania residents.

For those transfers of property which are subject to inheritance tax, several
different rates may apply. For decedents dying on or after July 1, 2000, a 4.5%
rate applies to transfers to or for the use of the decedent's children,
grandchildren, parents, grandparents, other lineal ancestors and descendants,
and the spouse of a decedent's child. For decedents dying before July 1, 2000, a
6% rate applied to these transfers.

For decedents dying on or after July 1, 2000, a 12% rate applies for transfers of
property to the decedent's brothers and sisters. For decedents dying prior to July
1, 2000, the rate applicable to transfers to brothers and sisters was 15%.

If a child under the age of 21 dies on or after July 1, 2000, there is no inheritance
tax for transfers to that child's parents.

For all decedents, a rate of 15% applies to transfers of property to or for the use
of all other persons or entities.

Transfers of property by the decedent during his or her lifetime and over which
he or she retains the income for life or otherwise controls the enjoyment until
death are subject to inheritance tax.

A transfer made within one year of the date of death of the transferor is subject to
inheritance tax if the transferor did not receive adequate consideration in money
or money's worth for the transfer. However, the transfer is subject to tax only to
the extent that the fair market value of the property transferred exceeds $3,000.

Certain deductions are allowed. Reasonable administration expenses, funeral
and burial expenses, property and income taxes owing prior to decedent's death,
and liabilities of the decedent at the time of his or her death are all deductible.

The inheritance tax return, together with payment of the tax, is due no later than
nine months after the decedent's date of death. The Department of Revenue has
the discretion to grant an extension of time for filing of the return for an additional
period of six months. A discount on the inheritance tax is available to the extent
the inheritance tax is paid within three months after the date of the decedent's
death. The discount is 5% of the amount actually paid within three months. It is
not necessary to file the inheritance tax return within the three month period. Tax
is simply paid on account.

Property is valued as of the date of the decedent's death for purposes of
determining the amount of tax payable. Unless the decedent's Will provides
otherwise, the inheritance tax is generally payable out of the residuary estate by
the personal representative of the estate. If the personal representative does not
pay the tax, the tax must be paid by the recipient of the residuary estate.

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