If my grandchildren are my beneficiaries, will my estate be subject to a larger transfer tax when I die?

By David G. Henry

Although the Pennsylvania Inheritance Tax rates are based upon the relationship between the decedent and each recipient of property, the age or generational assignment of any recipient is irrelevant. Accordingly, the amount of Pennsylvania Inheritance Tax payable following your death will not increase if your estate benefits your grandchildren in place of your children.

The U.S. Estate Tax rates are based solely upon the size of a decedent’s taxable estate. However, if your estate is large enough to be subject to the U.S. Estate Tax and your beneficiaries include your grandchildren or any other recipient who is assigned to the second generation below you (or to a more remote generation), the Internal Revenue Code contains provisions that may assess an additional transfer tax. Therefore, this Generation Skipping Transfer Tax could apply to your estate, increasing the amount of transfer tax payable to the U.S. Treasury following your death.