Inheritance taxes (or estate taxes as they are often called) are a controversial part of both state and federal tax law. Depending on how one looks at the situation, estate taxes may be seen as a useful way to redistribute money from the wealthiest families to render aid to the poorest. On the other hand, some who are subject to estate taxes see this type of levy as double-taxation on income already earned and taxed in other ways.
Although it is unlikely that the federal government would ever abolish estate taxes, a majority of states have already moved to end this type of tax. Pennsylvania continues to have an inheritance tax that is based on the relationship of the beneficiary to the person who has recently passed. This means that even those who do not have sufficient assets to exceed the federal exemption (currently set at just over $5.3 million) may be subject to estate taxes.
Many of the states that continue to have estate taxes have been re-evaluating this in recent years, with several more states abolishing the tax to prevent wealthier residents from leaving the state. Of course, there are various ways that individuals can seek to reduce their estate tax liability without relocating to another state, such as through charitable contributions, establishing trusts, or other methods.
What do you think – should Pennsylvania follow suit and stop collecting the inheritance tax? Or is the inheritance tax an effective way to increase revenue for the government in order to benefit lower income families?
Source: New York Times, “Some States Are Moving to Loosen Their Estate Taxes,” Jan. 24, 2014.