A federal judge has issued a lengthy opinion striking down Pennsylvania’s ban on same sex marriage. Such a ruling may be appealed, so we don’t know the final result yet. But there is a significant tax consequence to the downfall of this ban, and it relates to Pennsylvania Inheritance Tax. The Inheritance Tax is based on who receives the assets, not who leaves them. This means that the tax rate differs depending on who inherits. Assets that pass between spouses are free of tax, assets passing to children are taxed at 4 1/2%, and assets passing to unrelated persons are taxed at 15%. When same sex couples could not marry in Pennsylvania, assets that passed between those couples at death were taxed at 15%. If they are allowed to marry in Pennsylvania, the tax is reduced to zero. Couple this with the new federal rules treating same sex married couples the same as opposite sex married couples for purposes of income taxation and retirement benefits, and there is a new planning environment for same sex couples that, if properly used, could result in significant tax benefits on both the state and federal levels.
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