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Estate Taxes vs. Inheritance Taxes —What's the Difference?

An estate tax is charged against the entire value of an estate regardless of who the beneficiaries might be. It's a percentage of the overall value of all a decedent's property and assets owned at the time of his/her death. Pennsylvania does not have an estate tax, although there is one at the federal level.

An inheritance tax is charged against each share of the estate going to certain beneficiaries. They're technically liable for paying this tax, although sometimes it happens that the estate will step in and pick up the tab, particularly if instructions to do so are included in the decedent's will or living trust documents. The federal government does not impose an inheritance tax, but Pennsylvania does. Class A beneficiaries pay the lineal tax rate, which are subject to a 4.5 percent tax. Class A1 beneficiaries are taxed at the sibling rate of 12 percent, and Class B beneficiaries pay the collateral tax rate of 15 percent.

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