08/24/2026
The Two Certainties in Life – Death and Taxes
When we pass away, our property passes depending on its category. There are three categories of property: individual, joint, and designated.
Individual property is the default. If it isn’t joint or designated, then it’s individual property. When we die, our individual property passes to something called our probate estate. It then passes, according to our will, to the heirs or beneficiaries named in our will.
When we say property is “joint,” that’s shorthand for “joint tenants with rights of survivorship,” and it’s the rights of survivorship that tell you how this property passes. Joint property is property owned by two or more people with this right of survivorship. When one owner of joint property dies, the surviving owner(s) inherit the property automatically by operation of law. It is very common for spouses to own property jointly, though this arrangement isn’t limited to spouses. For some reason, men buy hunting camps and fishing boats like this all the time. When the surviving spouse inherits a joint asset, he or she now owns the property individually. So, when he or she dies, the property will pass to the probate estate, then through the will to the heirs of the estate.
Designated property is property that has a beneficiary designation. Traditionally, this includes life insurance and retirement accounts; however, other assets can be turned into designated assets through the use of a “transfer-on-death designation” or by placing the property into a revocable trust. When we die, designated property passes directly to the beneficiary designated to receive it.
Just as there are three ways that property passes when we die, there are three “death” taxes (at least in Pennsylvania). There’s a federal tax, a state tax, and a local cost associated with probate.
The federal tax is called the Federal Estate and Gift Tax. It works like this: Uncle Sam gives each of us a credit. We can give to people (other than our spouse or a charity) up to that credit, and Uncle Sam won’t take any more than he already has. This credit is sometimes called the “unified credit” because lifetime gifts and inheritances both count toward the credit. If we give away more than the credit during life and at death, then there’s a tax of approximately 40%. Currently, the credit is $15 million per person and twice that for married couples. So, it doesn’t apply to a lot of people. But when it applies, planners do a lot to mitigate its impact.
In Pennsylvania, there is an Inheritance Tax. This tax applies to almost everything. There are exemptions for life insurance death benefits, family farms, and small family-owned businesses. The tax rate depends on who inherits the property. Transfers to a surviving spouse and qualifying charities are generally exempt from Pennsylvania inheritance tax. The rate is 4.5% for direct descendants and lineal heirs, 12% for siblings, and 15% for most other beneficiaries. This tax is tough to avoid because even gifts made during the last year of our lives may be subject to this tax. Transferring assets to revocable trusts doesn’t avoid this tax. Reserving life estates doesn’t avoid this tax. Often, though not always, the best strategy is to make a plan for the payment of this tax.
The local cost is associated with probate. In Pennsylvania, this amounts to approximately 0.1% on individual property. It does not apply to joint property or designated property. This cost can be avoided by using a combination of beneficiary designations and a revocable trust. Often, however, the cost of avoiding probate can exceed the cost of probate. That is, avoiding probate often requires that deeds be prepared and recorded. In addition, a revocable trust must be prepared. Individuals should consider the costs of their competing options.
Also, in Pennsylvania, probate is a relatively quick and easy process. Unlike other states, Pennsylvania doesn’t have a “creditor notice period” during which property must remain in the probate estate for a certain amount of time before it is distributed. For people with out-of-state property, such as a vacation home, using a revocable trust to avoid probate, at least in that other state, can be a beneficial strategy.
Be sure to watch for next week’s post as we wrap up our National Make-A-Will Month series. We hope this information has been useful and enlightening. You can also visit
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