A Living Trust Does Not Avoid Pennsylvania Inheritance Tax

A funded revocable living trust can avoid probate. It does not avoid Pennsylvania inheritance tax. The 0, 4.5, 12, and 15 percent rates still apply.

A revocable living trust does not avoid Pennsylvania inheritance tax. It is the myth that costs families the most, because it is often the reason someone was sold the trust.

Here is the distinction that clears it up. A funded revocable living trust can avoid probate. It does not avoid the inheritance tax. Those are different systems, run by different offices, and they do not move together.

Probate is the Register of Wills. If the house and the accounts are titled in the trust, the successor trustee can deal with them under the trust document, without letters testamentary. That can save time, filing cost, and a public file. It is a real benefit. It is not a tax benefit.

The inheritance tax is administered by the Pennsylvania Department of Revenue. It reaches transfers at death. Because you can revoke a revocable trust and take the property back, Pennsylvania treats the trust assets as yours at death. They go on the inheritance tax return. Moving them into the trust does not change the rate, the deadline, or the person who owes the tax.

The rates, under 72 P.S. § 9116, are the same whether the property passes by will, by intestacy, or by revocable trust:

• Zero percent on transfers to a surviving spouse, and on transfers between a parent and a child aged 21 or younger.

• 4.5 percent on transfers to direct descendants and lineal heirs.

• 12 percent on transfers to siblings.

• 15 percent on transfers to other heirs, with exemptions for qualifying charities and certain government entities.

Property owned jointly between spouses is exempt.

There is no general dollar threshold. A $40,000 brokerage account left to a nephew is taxed. A $40,000 account left to a spouse is not.

The return is due nine months after death. The tax becomes delinquent after that. Pay within three months and 72 P.S. § 9142 allows a 5 percent discount. That discount is available whether the assets were in a trust or a probate estate.

Life insurance on the person who died is exempt from Pennsylvania inheritance tax. That exemption is in the Inheritance and Estate Tax Act (72 P.S. § 9111(d)), not in the trust. It holds if the proceeds are paid to a named person, to the estate, or to a revocable living trust, and it holds when the trustee later distributes them to a child, a sibling, or a friend. The trust’s other assets are the ones that follow the beneficiaries’ rates. Naming the trust as beneficiary does not make the proceeds taxable. It also does not make the house exempt.

Retirement accounts have their own special rules for Pennsylvania inheritance tax.

A traditional IRA is usually free of the tax if you die before age 59½. Once you reach 59½, the full account is on the tax return. A 401(k) works a little differently. It usually becomes taxable once you reach the plan’s normal retirement age—often 62 or 65—because that is when you could have taken the money without a penalty.

If you were disabled when you died, both a traditional IRA and a 401(k) are taxable no matter how old you were. A Roth IRA has to be looked at separately. The money you put in is usually taxable, while the growth may or may not be, depending on your age.

Whenever the tax does apply, it is charged on the full value of the account on the day you died. The rate is based on who you named as the beneficiary, and it is owed whether or not that person has taken any money out yet.

Pennsylvania charges no gift tax. Give property away outright, keep no right to it, and live more than a year, and the gift is generally outside the inheritance tax. Die inside that year and the gift comes back in, except for the first $3,000 to that person in that calendar year. A revocable trust does not start that clock. You can take the property back, so it is taxed at death

Irrevocable trusts are a different instrument. They can change the tax picture because you gave up control, and they can also change Medicaid planning, creditor exposure, and your ability to change your mind. They are not a living-trust form with the word revocable crossed out. They are a separate decision, with separate costs.

A revocable trust earns its keep in Pennsylvania only if you actually put assets in it. Funded, it keeps those assets out of probate, and it keeps the instructions off the public will file. If you cannot manage your affairs, the successor trustee can step in and handle what the trust owns. A will cannot do that. A will does nothing until you die.

The other clean use is a house in another state. Left in your name, it can force your family through probate twice. Deeded to the trust, the successor trustee deals with it.

The trust does not cover what you left outside it. The car, the IRA, and the account you never retitled still need a power of attorney. And do not automatically name the trust on every form. It is often the right beneficiary for life insurance. It is often the wrong one for a spouse’s retirement account, because it can cost the spouse the rollover.

What it is not for: erasing the 4.5 percent your children may owe, or the 12 percent a sibling may owe, or the 15 percent a friend may owe. If the pitch for the trust was “so the kids won’t pay Pennsylvania tax,” the pitch was wrong.

A sound week of planning ends on that sentence. Match the tool to the job. A will, powers of attorney, and clean beneficiary forms solve most of the unexpected issues. A funded trust solves probate. None of them, by themselves, repeal the inheritance tax.

Sojourner Law, PLLC advises individuals and families on estate planning, and estate administration in Pennsylvania.

This article is general information about Pennsylvania law as of October 2026. It is not legal advice and does not create an attorney-client relationship. Inheritance tax treatment depends on the asset, the title, and the beneficiary. Talk with a Pennsylvania estate planning attorney about your situation.