The Inheritance and Estate Tax Act

Section 2111. Transfers Not Subject to Tax.

___(b) Transfers of property to or for the use of any of the following are exempt from inheritance tax:

______(1) The United States of America.

______(2) The Commonwealth of Pennsylvania.

______(3) A political subdivision of the Commonwealth of Pennsylvania.

___(c) Transfers of property to or for the use of any of the following are exempt from inheritance tax:

______(1) Any corporation, unincorporated association or society organized and operated exclusively for religious, charitable, scientific, literary or educational purposes, including the encouragement of art and the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stockholder or individual and no substantial part of the activities of which is carrying on propaganda or otherwise attempting to influence legislation.

______(2) Any trustee or trustees or any fraternal society, order or association operating under the lodge system, but only if the property transferred is to be used by the trustee or trustees or by the fraternal society, order or association exclusively for religious, charitable, scientific, literary or educational purposes or for the prevention of cruelty to children or animals, and no substantial part of the activities of the trustee or trustees or of the fraternal society, order or association is carrying on propaganda or otherwise attempting to influence legislation.

______(3) Any veterans' organization incorporated by act of Congress or its departments or local chapters or posts, no part of the net earnings of which inures to the benefit of any private shareholder or individual.

___(d) All proceeds of insurance on the life of the decedent are exempt from inheritance tax. Refunds of unearned premiums for the current policy period and post mortem dividends shall be considered exempt proceeds.

___(e) All proceeds of any Federal War Risk Insurance, National Service Life Insurance or similar governmental insurance are exempt from inheritance tax. Refunds of unearned premiums for the current policy period and post mortem dividends shall be considered exempt proceeds.

___(f) The pay and allowances determined by the United States to be due a member of its armed forces for service in the Vietnam conflict after August 5, 1964, for the period between the date declared by it as the beginning of his missing-in-action status to the date determined by it to be the date of his death, are exempt from inheritance tax.

___(g) Inter vivos transfers as defined in subsection (c) of section 2107 which might otherwise be subject to inheritance tax are exempt where the transferee is a governmental body as provided in subsection (b) or a charity as provided in subsection (c).

___(h) Intangible personal property held by, for or for the benefit of a decedent who, at the time of his death, was a nonresident is exempt from inheritance tax.

___(i) A transfer made as an advancement of or on account of an intestate share or in satisfaction or partial satisfaction of a gift by will, but not within the meaning of subsection (c)(3) of section 2107, is exempt from inheritance tax.

___(j) Adjusted service certificates issued under the act of Congress of May 19, 1924, and adjusted service bonds issued under the act of Congress of January 27, 1936, are exempt from inheritance tax.

___(k) Property subject to a power of appointment, whether or not the power is exercised, and notwithstanding any blending of such property with the property of the donee, is exempt from inheritance tax in the estate of the donee of the power of appointment.

___(l) Property awarded to the Commonwealth as statutory heir by escheat or without escheat, otherwise than as custodian for a known distributee, is exempt from inheritance tax. Inheritance tax shall be deducted at the applicable rate without interest from any such exempt funds thereafter distributed by the Commonwealth.

___(m) Property owned by husband and wife with right of survivorship is exempt from inheritance tax. If the ownership was created within the meaning of section 2107(c)(3), the entire interest transferred shall be subject to tax under section 2107(c)(3) as though a part of the estate of the spouse who created the co-ownership.

___(n) Property held in the name of a decedent who had no beneficial interest in the property is exempt from inheritance tax.

___(o) Obligations owing to the decedent which are worthless immediately before death are exempt from inheritance tax although collectible from the obligor's distributive share of the estate.

___(p) The lump-sum death payment from the Social Security Administration or Veterans' Administration or any county veterans' death benefit or other similar death benefit, whether or not paid to the decedent's estate, is exempt from inheritance tax.

___(q) The lump-sum burial benefit from the United States Railroad Retirement Board, whether or not paid to the decedent's estate, is exempt from inheritance tax.

___(r) Payments under pension, stock bonus, profit-sharing and other retirement plans, including, but not limited to, H.R.10 plans, individual retirement accounts, individual retirement annuities and individual retirement bonds to distributees designated by decedent or designated in accordance with the terms of the plan, are exempt from inheritance tax to the extent that decedent before his death did not otherwise have the right to possess (including proprietary rights at termination of employment), enjoy, assign or anticipate the payment made. In addition to this exemption, whether or not the decedent possessed any of these rights, the payments are exempt from inheritance tax to the same extent that they are exempt from Federal estate tax under the provisions of the Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 1 et seq.), as amended, any supplement to the code or any similar provision in effect from time to time for Federal estate tax purposes, except that a payment which would otherwise be exempt for Federal estate tax purposes if it had not been made in a lump-sum or other nonexempt form of payment shall be exempt from inheritance tax even though paid in a lump-sum or other form of payment. The proceeds of life insurance otherwise exempt under subsection (d) shall not be subject to inheritance tax because they are paid under a pension, stock bonus, profit-sharing, H.R.10 or other retirement plan.

[Subsections (k) and (m) were amended by the Act of June 16, 1994, P.L. 279, No. 48, and amended by Section 17 of the Act of June 30, 1995, P.L. 139, No. 21, effective for decedents dying on or after January 1, 1995.]

Section 2112. Exemption for Poverty.

___(b) The General Assembly, having determined that there are persons within this Commonwealth the value of whose incomes and estates are such that the imposition of an inheritance tax under this article would cause them hardship and economic burden and having further determined that poverty is a relative concept inextricably joined with the ability to maintain assets inherited upon the death of a spouse, deems it to be a matter of public policy to provide an exemption from taxation for transfers of property to or for the use of that class of persons hereinafter designated in order to relieve their hardship and economic burden.

___(c) Any claim for a tax exemption hereunder shall be determined in accordance with the following:

______(1) The transferee is the spouse of the decedent at the date of death of the decedent.

______(2) The value of the estate of the decedent does not exceed two hundred thousand dollars ($200,000) after reduction for actual liabilities of the decedent as evidenced by a written agreement.

______(3) The average of the joint exemption income of the decedent and the transferee for the three taxable years, as defined in Article III, immediately preceding the date of death of the decedent does not exceed forty thousand dollars ($40,000).

___(d) Notwithstanding any other provision of this article, transfers of property to or for the use of any eligible transferee who meets the standards of eligibility established by this section as the test for poverty shall be deemed a separate class subject to taxation and, as such, shall be entitled to the benefit of the following exemptions from taxation on transfers of property as a credit against the tax imposed by this article:

______(1) For decedents dying on or after January 1, 1992, and before January 1, 1993, the lesser of:

_________(i) Two per cent of the taxable value of the property of the decedent transferred to or for the use of the transferee.

_________(ii) Two per cent of one hundred thousand dollars ($100,000) of the taxable value of the property of the decedent transferred to or for the use of the transferee.

______(2) For decedents dying on or after January 1, 1993, and before January 1, 1994, the lesser of:

_________(i) Four per cent of the taxable value of the property of the decedent transferred to or for the use of the transferee.

_________(ii) Four per cent of one hundred thousand dollars ($100,000) of the taxable value of the property of the decedent transferred to or for the use of the transferee.

______(3) For decedents dying on or after January 1, 1994, and before January 1, 1995, the lesser of:

_________(i) Six per cent of the taxable value of the property of the decedent transferred to or for the use of the transferee.

_________(ii) Six per cent of one hundred thousand dollars ($100,000) of the taxable value of the property of the decedent transferred to or for the use of the transferee.

___(e) For nonresident decedents, the credit provided in this section shall bear the same ratio as that of the decedent's estate in this Commonwealth bears to the decedent's total estate without regard to situs.

___(f) The credit provided in this section shall not be greater than the tax imposed.

___(g) This section shall not apply to the estates of decedents dying on or after January 1, 1995.

[Subsection (d) was amended by the Act of June 16, 1994, P.L. 279, No. 48, and amended by Section 18 of the Act of June 30, 1995, P.L. 139, No. 21, effective for decedents dying on or after January 1, 1995.
Subsection (f) was added by the Act of June 16, 1994, P.L. 279, No. 48, effective for decedents dying on or after July 1, 1994.
Subsection (g) was added by the Act of June 16, 1994, P.L. 279, No. 48, and amended by Section 18 of the Act of June 30, 1995, P.L. 139, No. 21, effective for decedents dying on or after January 1, 1995.]

Section 2113. Trusts and Similar Arrangements for Spouses.

___(b) Succeeding interests not subject to tax as transfers by the transferor by reason of subsection (a) shall be deemed to be transfers subject to tax by the surviving spouse of the property held in the trust or similar arrangement at the death of the surviving spouse. The tax on that property shall be based upon its value at the death of the surviving spouse, the tax rates applicable to dispositions by the surviving spouse or by the transferor, whichever are lower, and any exemptions relating to the kind or location of property held in the trust or similar arrangement at the surviving spouse's death.

___(c) Subsection (b) shall apply even if the succeeding interests not subject to tax as transfers by the transferor by reason of subsection (a) were also not subject to tax by reason of an exemption based upon the kind or location of property at the transferor's death.

___(d) This section shall not apply to inter vivos transfers otherwise exempt from inheritance tax.

[Section 2113 was added by the Act of June 16, 1994, P.L. 279, No. 48, and amended by Section 19 of the Act of June 30, 1995, P.L. 139, No. 21, effective for decedents dying on or after January 1, 1995.]