Estate Planning & Probate
Federal Estate Tax Pennsylvania | Exemptions, Rates and Planning
Most Pennsylvania families do not owe federal estate tax. For those who do, the difference between a plan and no plan is often measured in millions of dollars.
For families with significant wealth across multiple states, the 40 percent federal estate tax rate above the exemption can transfer more to the IRS than to the next generation.
Federal estate tax and Pennsylvania inheritance tax are separate obligations. A large estate may owe both. An estate below the federal exemption still owes Pennsylvania inheritance tax on transfers to anyone other than a surviving spouse. Executors need to account for both in the administration timeline before any distribution to heirs.
At Lebovitz & Lebovitz, P.A., we advise individuals and families on federal estate tax planning, Pennsylvania inheritance tax, and multistate estate administration throughout Allegheny County and Western Pennsylvania.
Federal estate tax planning for Pittsburgh families with Florida or North Carolina property requires coordinated legal analysis across all relevant jurisdictions.
If your estate includes property in more than one state, call 412-351-4422 or contact our office to discuss your situation.
Which describes your estate?
My estate will be under $15 million.
You probably do not have a federal estate tax problem. You have a Pennsylvania inheritance tax problem. At 12 percent for siblings and 15 percent for anyone outside the direct family line, the numbers are real on a $3 million estate regardless of what Congress did with the federal exemption.
My estate is between $15 and $30 million.
The exemption covers you individually. Whether it covers the combined estate depends on whether the portability election was properly made after the first spouse died. If no Form 706 was filed after the first death that conversation needs to happen now — before the late election window under Rev. Proc. 2022-32 closes. Even if the first spouse’s estate was under $15 million, Form 706 must still be filed to preserve the unused exemption for the surviving spouse. Without that filing the second estate is limited to $15 million — not $30 million.
My estate is over $30 million.
Federal estate tax applies to the excess above the combined exemption at 40 percent. The dynasty trust, GRAT, ILIT, and valuation discount structures are relevant now. The question is which are already in place, whether they were properly funded, and whether the business interests were actually transferred or just planned.
My spouse died in the last five years and I am not sure if a Form 706 was filed.
This is the portability election question. If no estate tax return was filed after the first death the DSUE may still be recoverable — but only within five years of that death. That window is closing. Find out before it does.
I have a business and the planning has not caught up with the value.
The business is in the gross estate at fair market value. Without a family limited partnership structure, minority discounts, and a qualified appraisal the IRS uses its own number. Proper entity structuring and a gifting program can reduce the taxable value significantly. The time to do that work is before the valuation event, not after.
I own property in Maine, North Carolina, or Florida — or all three.
Multi-state property means multi-state administration at death. A lake house in Maine or a mountain house in the Carolinas titled in your name alone triggers ancillary probate in that state — a separate court proceeding where you have no attorney and your executor has no authority until it concludes. A revocable trust or properly structured entity eliminates it. The federal exemption does not address this problem.
What the Federal Estate Tax Actually Is
The federal estate tax is a tax on the right to transfer property at death, paid by the estate before heirs receive anything. It applies only to estates above the applicable exemption, but at 40 percent above that threshold, the dollars at stake are significant.
The federal estate tax is a tax imposed on the right to transfer property at death. It is calculated on the total fair market value of everything owned by the decedent at the time of death, including real estate, investment accounts, retirement accounts to the extent included, business interests, life insurance proceeds payable to the estate, and other assets. The tax is not an income tax, and it is not Pennsylvania inheritance tax. It is a separate federal obligation with its own exemptions, its own rates, and its own filing requirements. The federal estate tax return (Form 706) is due nine months after the date of death under 26 U.S.C. § 6075(a). Extensions are available but the tax itself, if owed, must be estimated and paid by the original deadline to avoid interest and penalties. The tax is paid by the estate before any distribution to heirs, which means executors must plan for liquidity before the estate is distributed.
The Current Exemption After the One Big Beautiful Bill Act
The current federal estate tax exemption is $15 million per individual. For a married couple using portability, the combined exemption is $30 million. Estates below those thresholds owe no federal estate tax regardless of how the assets are distributed.
The One Big Beautiful Bill Act, signed into law on July 4, 2025, permanently raised the exemption and eliminated the sunset provision that had been scheduled to cut it roughly in half at the end of 2025. The exemption is now indexed for inflation going forward. Congress can always change the law. Families with estates in the $10 million to $30 million range should not treat the current exemption as a permanent guarantee. The conversation has shifted from emergency action to long-term structural planning, but it has not ended.
The 40 Percent Rate and What It Means in Practice
For the portion of an estate that exceeds the applicable exemption, the federal estate tax rate is 40 percent. That is not a marginal rate on the whole estate. It applies only to the taxable excess above the exemption. But at that rate, the numbers move quickly.
Illustrative example: A Pittsburgh couple with a combined estate approaching substantial amounts may believe each spouse is under the individual exemption. Without a portability election after the first death, the second estate loses the first spouse’s unused exemption. At 40 percent, that oversight costs millions of dollars that proper planning would have preserved.
What the $15 Million Exemption Does Not Solve
The exemption is $15 million. Pennsylvania inheritance tax is still 12 percent for siblings and 15 percent for anyone outside the direct family line. A $10 million estate passing to a niece and nephew owes $1.5 million to Pennsylvania regardless of what Congress did with the federal exemption. The federal planning solved the federal problem. Pennsylvania did not change its rates. Families who spent the last two years focused entirely on the federal sunset may have solved the smaller problem while the larger one — for their specific beneficiaries — remained unaddressed.
The ILIT, the GRAT, the dynasty trust — these remain relevant tools even at $15 million. Growth pushes estates above exemption thresholds over time. A $12 million estate today with a business growing at 15 percent annually will be a $24 million estate in six years. The exemption is $15 million now and indexed for inflation. But business growth routinely outpaces inflation. The dynasty trust funded today at a discounted valuation removes future appreciation from the taxable estate permanently. The conversation has shifted from emergency action to structural planning. It has not ended.
The lake house in Maine that the family has owned since 1974 appreciated from $180,000 to $2.4 million. It is titled in the decedent’s name. It passes through the will. It triggers ancillary probate in Maine — a separate court proceeding in a state where neither the executor nor the heirs have counsel and where the estate cannot be administered until the Maine proceeding concludes. A revocable trust or deed to a Pennsylvania trust with Maine situs language eliminates the ancillary proceeding entirely. The exemption did not create that problem and the exemption extension did not solve it.
The Portability Election You May Have Already Missed
A surviving spouse who does not file Form 706 within nine months of the first spouse’s death loses the deceased spouse’s unused exemption amount permanently. The portability election under 26 U.S.C. § 2010(c)(5) is not automatic. It requires a timely federal estate tax return even when no estate tax is owed. Most surviving spouses do not know this. Most estate attorneys who handle routine probate matters do not flag it. The first spouse dies. The estate is under the exemption. Nobody files Form 706. The surviving spouse remarries or accumulates assets and dies a decade later with a $20 million estate. The DSUE from the first spouse is gone. At 40 percent the cost of the missed election is measured in millions.
The IRS allows a late portability election under Revenue Procedure 2022-32 for estates that were not required to file a return — up to five years after the date of death. That window exists. But it requires action, documentation, and a return that should have been filed years earlier. The surviving spouse reading this two years after their husband died should ask one question before anything else: was a Form 706 filed? If the answer is no and the combined estate may approach the exemption at the second death, the answer to that question is worth finding out now.
Illustrative example: A Pittsburgh couple built a combined estate of approximately substantial amounts over forty years — a manufacturing business in the North Hills, a home in Fox Chapel, a condominium in Naples, and a camp on a Maine lake that had been in the family since 1961. The husband died in recently. His individual estate was approximately substantial amounts — well under the then-applicable exemption. No Form 706 was filed. The estate attorney handled the Pennsylvania inheritance tax return and closed the estate without raising the federal portability question. The wife accumulated additional assets over the following years and died in recently with an estate of substantial amounts. Her applicable exemption was substantial amounts. Without the portability election from her husband’s estate the DSUE was unavailable. The taxable excess: substantial amounts. The estate tax owed: substantial amountsA Form 706 filed in recently cost nothing and would have preserved substantial amountsThe window for a late election under Rev. Proc. recently-32 had closed two years before her death.
Pennsylvania Inheritance Tax and Federal Estate Tax: Two Different Problems
Pennsylvania is one of only six states that imposes an inheritance tax. Under 72 P.S. § 9116, the Pennsylvania inheritance tax applies to nearly every transfer at death, at rates ranging from zero percent for transfers to a surviving spouse to 4.5 percent for transfers to children and lineal descendants, 12 percent for siblings, and 15 percent for all others. There is no exemption based on estate size. A $200,000 estate and a $2 million estate both go through the same inheritance tax calculation.
Federal estate tax and Pennsylvania inheritance tax are separate obligations. A large estate may owe both. An estate below the federal exemption still owes Pennsylvania inheritance tax on transfers to anyone other than a surviving spouse. Executors and administrators need to account for both in the administration timeline and cash flow planning for the estate.
The Snowbird Problem: Florida Property and Federal Estate Tax
Many Pittsburgh families own Florida property, including condominiums in Naples or Sarasota, residences in the Tampa Bay area, and units in Fort Lauderdale buildings they have owned for twenty years. Florida has no state income tax and no state estate tax, which is one reason Pittsburgh families have been buying there for decades. But Florida property counts in the federal gross estate calculation regardless of where the owner was domiciled.
The domicile question is where the real money is. If you spend six months in Florida, file a Declaration of Domicile, and vote there, but Pennsylvania still considers you domiciled here, your estate pays Pennsylvania inheritance tax on every dollar. A contested domicile proceeding before the Register of Wills is expensive, slow, and unwinnable without documentation that should have been assembled years earlier. Stephen H. Lebovitz is licensed in both Pennsylvania and Florida. Clients navigating the domicile question, Florida property administration, or both Pennsylvania inheritance tax and federal estate tax on the same estate work with one attorney who knows both bodies of law and can document the domicile shift properly while there is still time to do it.
North Carolina Property: Mountain Homes and the Estate Tax Calculation
Pittsburgh families with North Carolina property face a specific problem at death: an ancillary probate proceeding in North Carolina is required to transfer real property titled in the decedent’s individual name, regardless of where the owner lived. A mountain home in the Asheville area, a lake property in the western counties, or a retirement residence all trigger this requirement unless proper planning is done before death. Proper planning, such as a revocable trust, an LLC holding the property, or a properly structured deed, can avoid ancillary probate entirely.
North Carolina does not impose a state estate tax, but North Carolina real estate is included in the federal gross estate. That planning also affects the estate tax calculation depending on how the property is held and what valuation discounts may apply to closely held interests.
Planning Strategies That Actually Work at the Federal Level
For families whose estates approach or exceed the current exemption, several strategies reduce federal estate tax exposure. Each of these strategies involves real trade-offs. The right answer depends on the size of the estate, the family structure, and how long the planning horizon is. That is the conversation worth having before anything is signed.
Irrevocable Life Insurance Trusts (ILITs). Life insurance proceeds payable to the estate are included in the gross estate under 26 U.S.C. § 2042. Proceeds payable to an ILIT are not, provided the trust is properly structured and the insured does not retain incidents of ownership. An ILIT can remove a significant asset from the taxable estate while still providing liquidity to pay estate taxes or make distributions to heirs.
Gifting during life. The annual gift tax exclusion, $19,000 per recipient per year in 2025, indexed for inflation, allows tax-free transfers that reduce the taxable estate over time without touching the lifetime exemption. Larger gifts use the lifetime exemption but remove future appreciation from the estate. For a business or investment portfolio with significant growth potential, removing assets now locks in current value for exemption purposes.
Spousal Lifetime Access Trusts (SLATs). A SLAT permanently removes assets from the grantor spouse’s taxable estate while maintaining indirect access through distributions to the beneficiary spouse during the marriage. The structure requires careful drafting to avoid the reciprocal trust doctrine when both spouses create trusts for each other, and it carries risks if the marriage ends or the beneficiary spouse dies first.
Qualified Personal Residence Trusts (QPRTs). A QPRT transfers a residence to a trust at a discounted gift tax value, allowing the grantor to continue living in the home for a term of years before full transfer to heirs. The discount reduces the taxable gift at transfer. The Florida condo or North Carolina mountain home that has appreciated substantially may be a candidate for this structure.
Portability. A surviving spouse can use the deceased spouse’s unused exemption amount (DSUE) by filing a timely Form 706 estate tax return after the first death, even if no tax is owed. This is not automatic. The election must be made under 26 U.S.C. § 2010(c)(5). Missing the portability election is one of the most common and costly estate planning mistakes for married couples with combined estates in the $15 million to $30 million range.
QTIP Trusts. A qualified terminable interest property trust allows assets to pass to a surviving spouse and qualify for the unlimited marital deduction while preserving the principal for remainder beneficiaries the grantor names. The structure is particularly valuable in second marriages where the grantor wants to support a surviving spouse while ensuring children from a prior relationship receive the principal at the spouse’s death.
Valuation discounts. Business interests and real property held through entities may qualify for lack-of-control or lack-of-marketability discounts that reduce the value included in the gross estate. These discounts require qualified appraisals and proper entity structuring. They are legitimate planning tools but they attract IRS scrutiny and must be properly documented.
Illustrative example: A Pittsburgh couple in their late sixties with a combined estate approaching substantial amounts may believe federal estate tax does not apply because each spouse is individually under the exemption. That belief is wrong. The combined estate above the substantial amounts portability ceiling is taxed at 40 percent. Waiting until the first spouse dies to have this conversation costs leverage that cannot be recovered.
When Federal Estate Tax Planning Can No Longer Wait
The planning strategies that reduce federal estate tax exposure — SLATs, GRATs, ILITs, dynasty trusts, valuation discount structures — all require time, assets in the right form, and a living client who can execute the documents. None of them work after the first death. Most require several years to run their course. A GRAT requires the grantor to outlive the trust term. A dynasty trust requires assets to be transferred now to remove future appreciation. An ILIT requires the insured to survive long enough for the three-year lookback under 26 U.S.C. § 2035 to expire before incidents of ownership are eliminated from the gross estate. This applies to policies transferred to the ILIT from the insured’s existing ownership. An ILIT that purchases a new policy from inception avoids the three-year lookback entirely — because there is no transfer, the ILIT owned the policy from the beginning.
The conversation worth having is not whether the estate might someday exceed the exemption. It is whether the structure in place today — the will, the trust, the entity holding the business, the beneficiary designations, the insurance owned by the right party — will perform as intended when the time comes. The families who discover the ILIT was never properly funded, or that the business interests were never transferred to the family limited partnership, or that the dynasty trust was drafted but never seeded with assets, discover it when there is no time to fix it. The planning window does not stay open indefinitely. It closes at the first death and it does not reopen.
What Federal Estate Tax Planning Requires from an Attorney
Federal estate tax planning starts with a conversation about what you have built, who you are building it for, and what happens to it if you do nothing. The documents come after that conversation. It requires analysis of the gross estate, coordinated planning with the family’s accountant and financial advisor, valuation work for business interests and real property, entity structure review, trust drafting where trusts are part of the strategy, and ongoing updating as the law and the family’s circumstances change.
Families with multistate property, whether Pennsylvania plus Florida, Pennsylvania plus North Carolina, or all three, need an attorney who can account for all of it in a single coordinated plan. A Pittsburgh estate planning attorney who does not know Florida law cannot advise on domicile questions. An attorney who does not know North Carolina probate procedure cannot plan around ancillary administration. When your estate crosses state lines, one attorney who knows all of those jurisdictions is worth more than three who each know one.
Frequently Asked Questions
Does Pennsylvania have its own estate tax?
No. Pennsylvania does not have a state estate tax. What Pennsylvania has is an inheritance tax, a different tax paid by the beneficiary, not the estate, at rates ranging from zero for a surviving spouse to 15 percent for unrelated heirs. The federal estate tax and the Pennsylvania inheritance tax are separate obligations. A large estate may owe both.
What is the current federal estate tax exemption?
The current federal estate tax exemption is $15 million per individual, subject to inflation indexing under the One Big Beautiful Bill Act signed in July 2025. A married couple can effectively shelter up to $30 million using portability. Estates below the applicable exemption owe no federal estate tax. The rate above the exemption is 40 percent.
Does my Florida condo count in my federal estate?
Yes. All property owned by the decedent at death, regardless of where it is located, is included in the federal gross estate. A Florida condominium, a North Carolina vacation home, and a Pennsylvania residence all count. Florida has no state estate tax, but the property is still part of the federal estate tax calculation.
What happens if I spend half my time in Florida? Which state’s law applies?
Domicile determines which state’s inheritance or estate tax applies to intangible property and to the overall administration of the estate. Real estate is taxed where it sits. If you have legitimately established Florida domicile, including filing a Declaration of Domicile, registering to vote in Florida, and changing your driver’s license, Pennsylvania inheritance tax may not apply to your full estate. If Pennsylvania contests your domicile claim after death, your estate pays inheritance tax on the full estate while your family spends years and significant legal fees fighting it. The time to document the domicile shift is while you are still alive to execute the proof.
Can I avoid federal estate tax by giving my assets away before I die?
Lifetime gifting reduces the taxable estate and is a legitimate planning strategy. The annual gift tax exclusion allows tax-free gifts of up to approximately $18,000 to $19,000 per recipient per year (adjusted for inflation) without using the lifetime exemption. Larger gifts use the lifetime exemption but remove future appreciation from the estate. Gifts made within three years of death of certain types may be pulled back into the gross estate under specific rules. Gifting strategies should be coordinated with an estate planning attorney and tax advisor.
What is portability and why does it matter?
Portability allows a surviving spouse to use the deceased spouse’s unused federal estate tax exemption. To preserve portability, the executor must file a federal estate tax return (Form 706) after the first spouse’s death, even if no tax is owed. The election is not automatic. Failure to file within the deadline forfeits the portability election, which can cost a married couple millions of dollars in additional estate tax on the second death. This is one of the most commonly missed planning opportunities for couples with combined estates above $15 million.
For more information on estate planning in Pennsylvania, visit our Estate Planning and Probate practice area page.