The Pennsylvania inheritance tax is a tax on the beneficiary’s right to receive property. The amount of tax a beneficiary pays depends on the value of the property received and his or her relationship to the deceased. Traditionally, the Pennsylvania inheritance tax had two rates: A rate of 6 percent applied to assets that passed to so-called lineal descendants, such as children, grandchildren and stepchildren. A higher rate of 15 percent applied to so-called collateral beneficiaries.
Currently, the Pennsylvania inheritance tax rates are 4.5 percent for transfers to direct descendants, 12 percent for transfers to siblings and 15 percent for transfers to other heirs. Property jointly owned between husband and wife is exempt from inheritance tax. Couples who are not registered as civil partners upon death must pay a full 15-percent inheritance tax.
HB 1828 specifically proposes that “[i]nheritance tax upon the transfer of property passing to or for the use of an individual in a domestic partnership shall be at the rate of zero percent for estates of decedents dying on or after Jan. 1, 2012.” This would make the tax code for domestic partners the same as that for married couples.
The bill defines “domestic partners” as: A relationship between two individuals who are at least 18 years of age; are not related to each other by blood or marriage within four degrees of consanguinity; are not married or in a civil union or domestic partnership with another individual; and agree to be in a relationship of mutual interdependence in which each individual contributes to the maintenance and support of the other individual and the relationship, even if both individuals are not required to contribute equally to the relationship.
HB 1828 goes on to state that the Department of Revenue may require an individual who asserts a domestic partnership under this statute to provide an affidavit signed under penalty of perjury by two individuals stating that they have established a domestic partnership and proof of any two of the following documents:
(1) joint liability of the individuals for a mortgage, lease or loan;
(2) the designation of one of the individuals as the primary beneficiary under a life insurance policy on the life of the other individual or under a retirement plan of the other individual;
(3) the designation of one of the individuals as the primary beneficiary of the will of the other individual;
(4) a durable power of attorney for health care or financial management granted by one of the individuals to the other individual;
(5) joint ownership or lease by the individuals of a motor vehicle;
(6) a joint checking account, joint investments or a joint credit account;
(7) a joint renter’s or homeowner’s insurance policy;
(8) coverage on a health insurance policy;
(9) joint responsibility for child care, such as guardianship or school documents;
(10) relationship or cohabitation contract.
Should this proposed bill become law, it is imperative that LGBT couples protect themselves with the proper legal documentation. LGBT couples with an estate plan and cohabitation agreement executed properly will have no issues meeting legal requirements to prove their domestic partnership.
Unfortunately, many LGBT couples are unaware of the underlying federal discrimination they face until it is too late: Because of DOMA, same-sex couples do not have the right to pass property to their partners without taxation.
It is important to note that the differential treatment of same-sex couples and married couples by the federal estate tax has not been a permanent part of the estate tax’s 90-year history. No federal estate tax marital bequest deduction existed before 1948, and the deduction only became unlimited in 1981. Regardless, the cost of the unequal treatment on affected same-sex couples of both federal and state tax laws is quite large. Though this bill is a progressive step, the day “straight taxes” and “gay taxes” are the same, there will be reason to celebrate.
Angela D. Giampolo, principal of Giampolo Law Group, maintains offices in Pennsylvania and New Jersey and specializes in LGBT law, business law, real-estate law and civil rights. Send Angela your legal questions at email@example.com.