Tuesday, May 13, 2008

query via e-mail on the subject of PA inheritance tax escrows

Hello Diane,

I'm from out of state and I've gone through multiple home purchases, sales and refis, but I have NEVER come across this before. I was wondering if you could shed some light on this topic of escrowing for PA inheritance tax.

My Mom passed away several months ago. She had no significant assets other than a modest home which was worth less than $250,000. I am going to settlement shortly and was just advised by the settlement agent that 4.5%
of the home's gross selling price (not the net proceeds) would have to be withheld/escrowed for Pennsylvania Inheritance Tax.

I have calculate that my Mom's estate will owe less than $4,000 in PA. inheritance tax, but the title company will be escrowing almost $10,000! The title company said that they will release the balance of the funds after the
Dept. of Revenue in Harrisburg provides me with a Notice of Appraisement saying the inheritance taxes have been satisfactorily paid -- in about 3 months!

The title company is claiming that all title companies are doing this now. They have been left with unpaid inheritance taxes in the past, which is why they require this of all estates, regardless of the size.

I think this is simply outrageous and was wondering what is your experience with this? The title company also said they would NOT accept a receipt even if I paid the inheritance tax at the County courthouse before settlement!

Thank you in advance


Steve from VA

Hi, Steve:

It's an issue we have to deal with and we have all been burned. I handle it in a few different ways. Whether or not the buyer's title agent will be more flexible, I can't tell you.

First, let me explain the title risk so you understand that it is real. Inheritance tax on the entire estate - not just the amount owing for this real estate - remains as an unfiled lien against the real estate for a bit over 20 years.

The PA Dept. of Revenue can file a lien against any real estate owned in the Commonwealth during that period IF there is any outstanding inheritance taxes owed, period.

What you CAN do if you want to move quickly and aren't ready to file the full inheritance tax return is ask the PA Dept. of Revenue for a release for this property.

If you are able to file the inheritance tax return now, I would get it to the Register of Wills with payment for any taxes owed. Offer to have the attorney for the estate provide a personal guaranty to cover any problems with the calculations or give a personal guarantee yourself.

Frankly, we do take the personal guarantee letters from the attorneys if we feel comfortable, however, a title agent is not required to take these letters. Their underwriter may prohibit the practice. Underwriters have various opinions on the risk of the letters.

In cases where we do escrow, we escrow 6% of the gross sale price so this title agent is a bit more lenient than we are. Remember that it's more than simply the tax that might be owed on this property that could force a lien.

If you are unable to work out any other solution and have to escrow, ask that they place the money in an interest bearing account. They are required to do so at your request. Also, the state requires that the escrow agreement be in writing and that the title agent charge a $25 fee to set-up the escrow. Read the agreement carefully with your attorney. Ours is irrevocable.

I hope this helps. FYI - Every year I have to send escrow money to the Dept. of Revenue because people abandon it. It's amazing. ;) Good luck and thanks for the question.


Anybody else with suggestions for Steve?

1 comment:

Dave Wirsching said...

We handle it the same way. Our underwriters won't let us take an attorney's letter anymore.

We always hold the money in a interest bearing account.

No one likes it here either.