PA Inheritance Tax Question?

Question

My husbands grandmother recently passed, because his mother receives SSI, she split her portion of the estate (a house) into thirds for her three children.
She expects us to give her the money we will receive when the home is sold. I insist on taking out the amount that will be due for taxes.
How much will we be levied for inheritance taxes and we will be expected to count this $ as income as well?

Answer 1

There are no income taxes on inheritance. There is an estate tax, but it's paid by the estate. If there isn't enough cash in the estate to pay the taxes, the assets will have to be sold to pay the taxes and then the remainder will be divided according to the will.

If you received a bequest it's yours to keep; you cannot be compelled by anyone to give it away. If you give it to your husband's mother that will be considered a gift and there may be Gift Tax consequences to you if you do that depending upon the amount.

It sounds like she was trying to dodge the bullet on his mother's SSI since she could lose it if she has too much in the way of assets. In that case, she'd still lose it if you all gave her YOUR inheritances since she'd still have too much in the way of resources.

Answer 2

You may have a much more complex question than you think. Let us just deal with the Federal tax issues. Your mother in law will receive the house without tax consequences to her if she received title due to an inheritance. There could have been estate taxes due on the estate in which the house was held prior to the grandmother passing away and in that case one of the means of settling those estate taxes is to sell the house or other assets of the estate. If that is what she is doing there is no way to know what the taxes would be from the information that you have provided.
On the other hand she may be intending on selling the house at some time in the future and wishes that her children give her that money in advance. In that case the income tax would be based on the difference of the Fair Market Value of the property on the date of death for the Grandmother and the sales price on the date that the property is sold.
Now those are nothing more than guesses at what your husbands family are attempting to do. The best advise you can get at this point is not to do anything until everybody involved has a clear idea what they are doing and they have reviewed those plans with a "knowledgeable" tax professional. These are the types of events that cause families to never speak to one another after the dust has settled so be careful.
Once you figure out the federal issues the inheritance tax in PA are rather harsh. It is 4.5% of the value of the estate minus $3,000 exemption and any expenses of settling the estate. There are some other rules that may apply but it would be difficult to tell which of those apply to your situation.