When someone dies owning an investment account in Pennsylvania, transferring stocks, bonds, brokerage accounts, or other securities to beneficiaries may involve an additional Pennsylvania inheritance tax reporting requirement. Depending on the account and circumstances, the financial institution may require proof that Pennsylvania’s requirements have been satisfied before transferring the assets.
This issue commonly arises with investment accounts that have a named beneficiary or are registered as Transfer on Death (TOD) or Payable on Death (POD) accounts.
Pennsylvania law requires certain transfers of securities and security accounts to be reported to the Pennsylvania Department of Revenue. However, an important distinction is that obtaining a traditional inheritance tax “waiver” is not necessarily the only way to satisfy this requirement.
Pennsylvania provides several methods for complying with the rules governing the transfer of securities after death.
Key Takeaways
- Pennsylvania has specific requirements governing the transfer of securities and security accounts after the owner’s death.
- These rules can apply to stocks, registered bonds, brokerage accounts, and certain TOD or POD investment accounts.
- Pennsylvania Form REV-516 is currently titled Notice of Transfer and can be used to report qualifying securities or security accounts held in beneficiary form.
- After reviewing a properly submitted REV-516, the Pennsylvania Department of Revenue can issue an acknowledgment letter demonstrating compliance with the applicable reporting requirement.
- Filing and paying Pennsylvania inheritance tax before the transfer may also satisfy the applicable requirement.
- The correct procedure depends on how the account is titled, the beneficiary designation, the decedent’s residency, and other circumstances.
What Is a Pennsylvania Inheritance Tax Waiver?
The phrase Pennsylvania inheritance tax waiver is commonly used when discussing the release or transfer of certain investment assets after a person’s death.
Pennsylvania law restricts a corporation, financial institution, broker, or similar entity from transferring certain securities or security accounts belonging to a Pennsylvania resident decedent unless the applicable requirements have been satisfied.
Depending on the circumstances, compliance may be established through payment of the applicable inheritance tax, written consent from the Pennsylvania Department of Revenue, an applicable affidavit, or notification of the transfer to the Department.
This distinction is important because families sometimes believe they must wait for Pennsylvania to issue a formal inheritance tax waiver before an investment account can be transferred. That is not necessarily the case.
Why Can Pennsylvania Investment Accounts Be Delayed After Someone Dies?
Many assets pass outside probate.
For example, a brokerage account may contain a Transfer on Death designation naming the person who should receive the account when the owner dies.
Although the beneficiary designation may allow the asset to pass outside the probate estate, that does not necessarily eliminate Pennsylvania inheritance tax or reporting requirements.
A brokerage firm or financial institution therefore may require documentation showing that Pennsylvania’s requirements have been satisfied before completing the transfer.
This can surprise beneficiaries who assume that a TOD or POD designation means the investment account can immediately be transferred after presenting a death certificate.
Which Investment Accounts May Be Subject to Pennsylvania’s Transfer Requirements?
Pennsylvania’s rules can apply to securities and security accounts, including certain:
- Brokerage accounts
- Stocks
- Registered bonds
- Securities accounts
- Investment accounts registered in beneficiary form
- Transfer on Death (TOD) accounts
- Payable on Death (POD) accounts
The Pennsylvania Probate, Estates and Fiduciaries Code defines a “security account” broadly and can include securities accounts maintained by financial institutions, dealers, or brokers as well as certain cash balances, interest, earnings, and dividends associated with those accounts.
Because investment accounts can be titled in many different ways, the proper procedure should be determined based on the actual ownership and beneficiary designation of the account.
Do TOD Investment Accounts Avoid Pennsylvania Inheritance Tax?
Not necessarily.
A Transfer on Death designation determines who receives the account after the owner’s death, but it does not by itself determine whether Pennsylvania inheritance tax is owed.
This is an important distinction in Pennsylvania estate administration.
Assets that pass outside probate can still be relevant for Pennsylvania inheritance tax purposes.
Pennsylvania inheritance tax generally depends on the nature of the transfer and the beneficiary’s relationship to the decedent.
Current Pennsylvania inheritance tax rates generally include:
- 0% on transfers to a surviving spouse and certain qualifying parent-child transfers
- 4.5% on transfers to direct descendants and other lineal heirs
- 12% on transfers to siblings
- 15% on transfers to many other beneficiaries
Certain charitable organizations, exempt institutions, and government entities may be exempt.
Accordingly, the fact that an investment account passes directly to a beneficiary does not necessarily mean the transfer is free from Pennsylvania inheritance tax.
What Is Pennsylvania Form REV-516?
Pennsylvania Form REV-516, Notice of Transfer, is used to report certain stocks, bonds, securities, or security accounts held in beneficiary form to the Pennsylvania Department of Revenue.
The form requests information concerning the:
- Decedent
- Financial institution, brokerage firm, or other entity maintaining the account
- Account title and number
- Number of beneficiaries
- Account balance
- Type of account
- Beneficiaries
- Beneficiaries’ relationships to the decedent
- Percentage of the account taxable to each beneficiary
Pennsylvania instructs taxpayers to report the value of the account as of the decedent’s date of death, including certain accrued interest and dividends earned but not yet issued as of the date of death.
If multiple accounts must be reported, Pennsylvania generally requires a separate REV-516 for each account. If a main account consists of multiple subaccounts, the Department’s instructions provide for reporting the main account number and total value of the applicable subaccounts.
Who Files Pennsylvania Form REV-516?
Pennsylvania’s instructions state that corporations, financial institutions, brokers, and similar entities are required to report applicable transfers.
However, a beneficiary, trustee, or representative of the estate may also notify the Pennsylvania Department of Revenue when that person has the information necessary to complete the reporting.
In practice, families administering an estate may therefore encounter different procedures depending on the brokerage firm or financial institution involved.
What Happens After REV-516 Is Filed?
After the Pennsylvania Department of Revenue reviews the completed REV-516, it can issue an acknowledgment letter confirming that the asset has been reported to the Department.
That acknowledgment letter may then be used to demonstrate compliance with Pennsylvania’s securities-transfer reporting requirements.
This is one reason it is more accurate today to think about REV-516 as part of the notification and compliance process rather than simply calling the form an “inheritance tax waiver.”
Is an Inheritance Tax Waiver Always Required in Pennsylvania?
No.
Pennsylvania law provides more than one method for satisfying the requirements applicable to certain securities transfers.
Depending on the circumstances, a financial institution may be able to transfer an applicable security or security account when:
- The inheritance tax associated with the transfer has been paid;
- Written consent has been obtained from the Pennsylvania Department of Revenue;
- An applicable affidavit establishes an exception recognized by Pennsylvania law; or
- The required written notification of the transfer is provided to the Department.
The appropriate method depends on the facts surrounding the decedent, account, ownership structure, and beneficiary.
This is why executors and beneficiaries should not assume that every investment account requires the exact same paperwork.
What About an Investment Account Passing to a Surviving Spouse?
Pennsylvania provides important rules for transfers involving surviving spouses.
Transfers to a surviving spouse are generally subject to a 0% Pennsylvania inheritance tax rate.
Pennsylvania law also contains specific provisions concerning jointly owned securities where the surviving joint owner was the decedent’s spouse.
However, how an account is titled and when the ownership interest was created can matter. Families should therefore review the actual account registration rather than assuming every spousal investment account receives identical treatment.
Are Joint Investment Accounts Treated Differently?
They can be.
Jointly owned investment accounts can raise different Pennsylvania inheritance tax issues than accounts owned solely by the decedent with a TOD beneficiary.
Pennsylvania generally considers the decedent’s interest in certain jointly held property when determining the taxable estate. Special rules may apply depending on the form of ownership, the identity of the joint owner, and when the joint ownership was established.
For that reason, determining the proper treatment of an investment account often begins with identifying exactly how the account was titled immediately before the owner’s death.
How Are Investment Accounts Valued for Pennsylvania Inheritance Tax?
Investment assets generally must be reported based on their applicable value as of the decedent’s date of death.
Pennsylvania provides specific valuation rules for different types of securities.
For example, publicly traded stock is generally valued using market information from the date of death, while mutual funds generally use net asset value. Accrued interest and certain dividends may also need to be included.
Accurate date-of-death valuation is therefore an important part of administering an estate containing substantial investment assets.
Executors should obtain appropriate date-of-death statements and valuation information from the brokerage firm or financial institution.
How Long Do You Have to Pay Pennsylvania Inheritance Tax?
Pennsylvania inheritance tax is due upon the decedent’s death and generally becomes delinquent nine months after the date of death.
Pennsylvania also provides an incentive for early payment: when inheritance tax is paid within three months of the decedent’s death, a 5% discount may be available.
For Pennsylvania residents, inheritance tax returns and payments are generally handled through the Register of Wills for the county in which the decedent resided.
The timing of tax payments should therefore be considered early in the estate administration process, particularly when an estate contains significant investment assets.
Common Problems With Pennsylvania Investment Accounts After Death
Investment accounts can create delays when beneficiaries or executors are unfamiliar with Pennsylvania’s reporting requirements.
Common issues include:
- Assuming a TOD account automatically avoids inheritance tax
- Waiting for a “waiver” when another compliance method may be available
- Providing incomplete account information
- Using an incorrect date-of-death valuation
- Failing to account for accrued interest or dividends
- Misunderstanding how jointly owned accounts are treated
- Incorrectly determining the beneficiary’s inheritance tax rate
- Failing to coordinate the brokerage transfer with the estate’s Pennsylvania inheritance tax return
These issues can be particularly significant when an estate contains multiple brokerage accounts or substantial investment holdings.
Frequently Asked Questions About Pennsylvania Inheritance Tax Waivers
Do I need an inheritance tax waiver to transfer a brokerage account in Pennsylvania?
Not necessarily. Pennsylvania provides several methods for satisfying the requirements applicable to certain securities transfers. The correct procedure depends on the ownership and beneficiary structure of the account and other circumstances.
What is REV-516 in Pennsylvania?
REV-516 is the Pennsylvania Department of Revenue’s Notice of Transfer form for certain stocks, bonds, securities, or security accounts held in beneficiary form. It provides the Department with information about the decedent, account, financial institution, and beneficiaries.
How do I get a Pennsylvania inheritance tax waiver?
The process depends on the asset and circumstances. For certain beneficiary-designated investment accounts, REV-516 may be used to notify the Pennsylvania Department of Revenue. Following review, the Department can issue an acknowledgment letter demonstrating compliance with the reporting requirement.
Does a TOD account avoid probate in Pennsylvania?
A properly established Transfer on Death designation generally allows the applicable security or account to transfer to the named beneficiary outside the probate process. However, avoiding probate does not necessarily mean the asset is excluded from Pennsylvania inheritance tax or reporting requirements.
Are brokerage accounts subject to Pennsylvania inheritance tax?
They can be. Pennsylvania inheritance tax generally applies to taxable transfers at death, and the applicable rate depends largely on the beneficiary’s relationship to the decedent. How the brokerage account is owned and designated can affect its treatment and reporting.
Does a surviving spouse pay Pennsylvania inheritance tax?
Pennsylvania currently imposes a 0% inheritance tax rate on transfers to a surviving spouse. However, documentation and reporting requirements may still need to be addressed when transferring certain assets.
Who can file REV-516?
Pennsylvania’s instructions state that corporations, financial institutions, brokers, or similar entities are required to report applicable transfers. A beneficiary, trustee, or estate representative may also notify the Department when the necessary information is available.
What value should be reported for an investment account?
Pennsylvania generally requires assets to be valued as of the decedent’s date of death. REV-516 also instructs filers to include applicable accrued interest and dividends earned but not issued as of the date of death.
Get Help With Pennsylvania Inheritance Tax and Estate Administration
Transferring an investment account after a loved one’s death can appear straightforward when the account has a named beneficiary. Pennsylvania’s inheritance tax and securities-transfer requirements, however, can add another layer to the process.
Understanding whether an account requires notification to the Pennsylvania Department of Revenue, determining the proper date-of-death value, calculating the applicable inheritance tax, and coordinating the transfer with the overall estate administration can help avoid unnecessary delays.
The Trusts, Estates and Tax attorneys at Unruh Turner Burke & Frees assist executors, trustees, beneficiaries, and families with Pennsylvania estate administration, inheritance tax matters, estate planning, and related issues.
If you are administering an estate or experiencing difficulty transferring an investment account after a Pennsylvania resident’s death, contact Unruh Turner Burke & Frees to discuss the appropriate next steps.
