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Part Five : Failure To Get Discount For Early Inheritance Tax Payment

The fifth mistake is the failure to pay taxes early or paying taxes early. Let me explain what I mean by that since that sounds kind of weird. There is a discount under Pennsylvania law for paying the inheritance taxes within 3 months, rather than at 9 months when the inheritance tax return is due. And a lot of times it’s prudent to make that payment, and for example if you have an estate that has a lot of cash, and the money’s available and it’s not earning 10%, then you’re going to get a 5% discount for a 6month period, that’s effectively a 10% per year return, so if you’ve got lots of cash and it’s earning less than 10% it may make sense to maybe pay that tax early and get that discount.

However, if you’ve got a house and not a lot of cash, and you’re going to have to pay taxes and heat it and insure it, or you’re earning more than the value of the discount with the money in the bank or however it’s invested, then it may not make sense, and I see people pay this tax or not pay this tax, without thinking it out clearly. People see a discount, it’s like people that rush to a store because it’s having a sale, I know this is nobody listening to this call, but I’m personally aware of people that buy things because they’re on sale, even when they don’t need them, and then later wonder what the heck they were doing.

And the same thing with this tax, it is not always a smart thing for an executor to pay this tax, especially when the estate is a little bit liquid. So that is again, an area when you would want to get advice, so that one of the most common mistakes is failing to pay the tax early or paying the tax early.

David M. Frees III Esq.

610-933-8069

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