Estate planning for the LGBT couple in Pennsylvania is complicated by the fact that no matter how long the couple may have lived with one another or be committed to one another, for Inheritance Tax purposes they are considered non-relatives. This means that transfers at death from one person to another are taxed at the highest possible rate; 15%.
One exception to this tax is life insurance. The Pennsylvania Inheritance Tax rate on life insurance passing from on LGBT person to another at death is 0%. Every LGBT estate plan should then carefully examine the assets available to the couple and see if the existing life insurance, or life insurance purchased as part of the plan, can reduce the Inheritance Tax due.
For example, if one partner wishes to leave another partner $100,000 in cash, the surviving partner will only receive $85,000 after the 15% inheritance tax. On the other hand, if the partner left $100,000 from a life insurance policy, the surviving partner receives the entire $100,000. With a small amount of planning, the surviving partner in this example ends up with an additional $15,000.
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