Assisting Clients With Estate & Gift Tax Matters in Pennsylvania
With over 30 years of experience and a commitment to open communication, Dorko Wealth & Estate Planning is dedicated to providing client-focused representation. As a family-run firm, we understand the importance of protecting your family's interests. Jeff Dorko, with his extensive education and expertise, including a J.D., MBA, and a Masters in Taxation, offers the knowledge and experience needed to provide you with optimal and strategic results. We believe in cutting through legal jargon to ensure our clients fully understand their estate and gift tax matters. Your peace of mind and financial well-being are our top priorities.
At Dorko Wealth & Estate Planning, we can help minimize your estate's tax burden. Call us at (610) 957-0018 or contact us online to schedule a consultation with a Berks County estate & gift tax attorney.
What Is Estate Tax?
Estate tax is a federal and, in some cases, state tax that applies when an individual passes away and their estate's total value surpasses a predetermined exclusion limit. This tax is computed based on the fair market value of the assets within the estate, not their initial purchase price. It's important to note that the specific regulations and rates can vary depending on the state in which the deceased person resided at the time of their death.
What Is Gift Tax?
Gift tax is a federal tax imposed on individuals by the Internal Revenue Service (IRS) when they transfer property or assets to someone else without receiving something of substantial value in return. These gifts can take various forms, such as cash, real estate, or other property. The IRS sets specific limits on the amount you can gift to someone annually without incurring gift tax. Any gifts exceeding this limit must be reported and will affect your lifetime gift tax exemption. Once this exemption is surpassed, the gift tax becomes payable. Importantly, the gift tax can apply even if your intent was not to make a gift, highlighting the importance of understanding the tax implications when transferring assets to others.
State-Specific Estate and Gift Tax Laws
Estate and gift tax laws can vary significantly between states. While the federal government imposes estate and gift taxes, many states also have their own tax systems, which can add complexity to estate planning.
Pennsylvania’s Inheritance Tax:
Pennsylvania imposes an inheritance tax on estates, which is different from the federal estate tax.
The rates vary depending on the relationship between the deceased and the beneficiary:
0% for spouses and charities
4.5% for direct descendants (children, grandchildren)
12% for siblings
15% for all other beneficiaries
This inheritance tax is levied on the value of the assets inherited, not the entire estate.
Comparison with Neighboring States:
New Jersey and Delaware also have state-level estate taxes, though New Jersey has phased out its estate tax, leaving only an inheritance tax.
Maryland has both an estate tax and an inheritance tax. Its estate tax exemptions are lower than federal limits, which may impact estates that exceed $5 million.
New York has an estate tax with a lower threshold for exemption and higher rates than Pennsylvania, especially for estates valued over $10 million.
Tax Exemptions and Deductions
Federal Estate Tax Exemption:
As of 2025, the federal estate tax exemption is $12.92 million per individual. This means that if your estate is valued below this amount, it will not be subject to federal estate taxes.
Married couples can combine their exemptions, effectively shielding up to $25.84 million from estate taxes by utilizing both exemptions.
Annual Gift Tax Exclusion:
You can gift up to $17,000 per recipient each year without incurring gift taxes. This exclusion applies to both direct gifts of money and transfers of property.
Gifts above this amount count toward your lifetime gift tax exemption, which is linked to the estate tax exemption.
Deductions to Reduce Estate Tax Liability:
Several deductions can help reduce the taxable value of your estate:
Debts and Mortgages: Any debts owed by the deceased, including mortgages and personal loans, can be deducted.
Funeral Expenses: Reasonable funeral and burial costs can also be deducted from the estate.
Administrative Expenses: Costs such as executor fees, legal fees, and court costs associated with probate can reduce the taxable estate value.
How Estate and Gift Taxes Affect Heirs and Beneficiaries
Estate and gift taxes directly impact heirs and beneficiaries because they can reduce the value of the assets they inherit.
Impact on Heirs:
Inherited assets may be subject to estate taxes if they exceed certain thresholds.
Beneficiaries may face capital gains taxes on assets sold after inheritance, based on the “step-up in basis” rule. This rule allows the inherited property to be valued at its current market value, rather than its original purchase price.
Strategies for Beneficiaries:
Utilize Exemptions: Beneficiaries can benefit from the annual gift exclusion and use gifting strategies to reduce the estate’s tax burden before receiving an inheritance.
Consult an Attorney: Work with an estate planning attorney to explore the best tax strategies available, such as setting up trusts or making charitable donations.
Sell Inherited Assets: If an inherited asset appreciates significantly, beneficiaries can consider selling it to take advantage of the step-up in basis, minimizing capital gains taxes.
Understanding these laws and exemptions is essential for both estate planning and for heirs to manage their inheritance effectively. Consulting with a tax professional or estate lawyer is the best way to navigate these complexities and minimize tax burdens.
How Can an Attorney Help With Estate & Gift Taxes
An attorney specializing in estate and gift taxes can provide valuable assistance in several ways:
Estate Planning: We can help individuals plan their estates to minimize tax liabilities. This involves creating wills, trusts, and other legal instruments to ensure the smooth transfer of assets while considering tax implications.
Gift Tax Planning: We can advise on gift tax strategies, helping clients make gifts while minimizing the impact of gift taxes. This may involve utilizing exemptions, such as the annual gift tax exclusion, and structuring gifts tax-efficiently.
Tax Compliance: Estate and gift tax laws are complex and subject to change. We can ensure that clients comply with current tax regulations, file the necessary forms, and meet deadlines to avoid penalties.
Valuation of Assets: Determining the value of assets is crucial for estate and gift tax calculations. We can assist in accurately valuing different types of assets and navigating valuation challenges to optimize tax outcomes.
Probate and Administration: In the event of a person's passing, attorneys can guide the executor or administrator through the probate process, ensuring that the estate is settled efficiently and by tax laws.
Dispute Resolution: If estate or gift tax matters arise, attorneys can represent clients in negotiations or legal proceedings to resolve conflicts and protect their interests.
Tax Audits and Appeals: If a client faces an audit or appeal related to estate or gift taxes, we can provide representation, presenting the necessary documentation and arguments to support the client's position.
Charitable Giving: We can advise on tax-efficient charitable giving strategies, helping clients support charitable causes while maximizing tax benefits.
Frequently Asked Questions (FAQ) About Estate and Gift Taxes
What is the difference between estate tax and inheritance tax?
Estate tax is imposed on the overall value of a deceased person’s estate before it is distributed to heirs. The federal government imposes estate tax on estates that exceed a certain exemption limit.
Inheritance tax, however, is levied on the value of the assets inherited by beneficiaries, and the rate often depends on the beneficiary's relationship to the deceased. Pennsylvania imposes an inheritance tax, which is separate from the federal estate tax.
Do I have to pay estate taxes on assets received as a beneficiary? It depends on the size of the estate and the state laws. If the estate exceeds the estate tax exemption limit (federal or state), beneficiaries may be required to pay taxes. However, assets passed to spouses and sometimes children may be exempt from estate tax, depending on the state's laws.
Can I gift assets to reduce my estate tax liability? Yes, gifting assets during your lifetime is one strategy to reduce estate tax liability. The annual gift tax exclusion allows you to give a certain amount each year without incurring gift tax. As of 2025, this is $17,000 per recipient. Larger gifts may reduce the size of your estate and potentially lower estate tax obligations.
What is the lifetime gift tax exemption? The lifetime gift tax exemption is the total amount you can gift throughout your lifetime before incurring gift tax. It is tied to the federal estate tax exemption and is currently $12.92 million per individual as of 2025. Gifts exceeding the annual exclusion amount will count against this lifetime exemption.
Are there any estate planning strategies to avoid paying estate taxes? Yes, several strategies can help reduce or eliminate estate taxes, including:
Establishing trusts (e.g., irrevocable trusts) to remove assets from your taxable estate.
Making charitable donations that are tax-deductible, reducing the estate’s value.
Gifting assets during your lifetime to use the annual exclusion and lifetime exemption.
Taking advantage of tax deductions such as debts, funeral expenses, and administrative costs to lower the taxable estate value.
Can estate and gift tax laws change over time? Yes, tax laws can change due to legislative adjustments. Exemption limits, tax rates, and other regulations are subject to change based on federal and state legislation. It’s important to regularly review your estate plan and consult with an estate attorney to ensure your plan remains up-to-date with current laws.
How can I plan for both state and federal estate taxes? It’s essential to work with an estate planner who understands both federal and state estate tax laws. Strategies like utilizing both state and federal exemptions, gifting, and creating trusts can be effective for managing estate taxes across different jurisdictions.
Schedule a Consultation with Our Berks County Tax Attorneys
Look no further if you're seeking expert guidance on estate and gift tax matters. Our Berks County estate and gift tax lawyers are committed to providing comprehensive and personalized assistance to navigate the complexities of tax law. Whether you're planning your estate, managing a gift tax situation, or dealing with related legal matters, we are here to offer knowledgeable insights and strategic solutions. Contact us today to schedule a consultation and ensure your financial issues are in capable hands. Your peace of mind is our priority.
Have questions? Speak with a seasoned Berks County estate & gift tax lawyer at Dorko Wealth & Estate Planning. Dial (610) 957-0018 or reach out online.
Successful Transfer of OwnershipBusiness & Farm Ownership Transfer
In numerous cases, Jeff has helped people create plans to not only transfer clients' businesses or farms to the next generation, but also eliminate dissension in the family by providing for family members not involved in the original family enterprise.
Revised Property and Investment Plan for TrustFamily Cottage Trust
Assisted a client who owned a cottage in Maine in establishing a family cottage trust, allowing their children to continue using and enjoying the cottage after their parents' death without any obligation to pay for the cost. The client also revised their investment plan, making funds available for the remainder of their grandchildren's lives, as well.
Wealth Transferred to Children & GrandchildrenFamily Limited Partnership
Assisted a client for over 25 years to sell off her portfolio of undeveloped real estate. This allowed her to transfer a substantial part of her wealth to her children and grandchildren through a family limited partnership. By doing so, she not only paid for college for all of her grandchildren but also developed strong bonds with them through annual family vacations.
