More HH Legal Updates

Houston Harbaugh is a full service law firm headquartered in Pittsburgh and serving Pennsylvania, West Virginia and Ohio. This collection of blogs further highlights the firms capabilities in several practice areas.

Pennsylvania Inheritance Tax Law Has New Exemption For Small Family Businesses

Pennsylvania has an Inheritance Tax that applies in general to transfers resulting from a person’s death. The tax rate depends on the relationship of the recipient to the decedent (i.e., 0% for a spouse or parent of child under age 21; 4.5% for a lineal descendant or ancestor, 12% for a sibling and 15% for other taxable recipients).

Some transfers are exempt from the tax, and as of July 9, 2013, a new exemption was added (Act 52) concerning specified transfers in a qualified family-owned business that are reported on a timely filed Inheritance Tax Return.

Qualified Family-Owned Business

A qualified family-owned business is defined as a proprietorship or entity that was in existence with respect to a trade or business for five years prior to the decedent’s death and at the time of the decedent’s death has (i) fewer than fifty full-time equivalent employees and (ii) assets with a net book value less than $5,000,000. Further, an entity qualifies only if it was wholly owned by the decedent or by the decedent and eligible family members (i.e., spouse, lineal descendants, siblings, sibling’s lineal descendants, ancestors and ancestor’s siblings). Plus the entity must have a trade or business with a principal purpose other than the management of the entity’s investments or income-producing assets.

To prevent people from making transfers in contemplation of death merely to avoid tax, the new law provides that if the decedent added property to the qualified family-owned business within one year of death, such property will not be exempt unless it was added for a legitimate business purpose.

Valuation matters and the classification of employees may come under added scrutiny with the new law.

Eligible Transferees

The exemption applies only if the decedent’s interest in a qualified family-owned business is transferred to one or more eligible family members (i.e., spouse, lineal descendants, siblings, sibling’s lineal descendants, ancestors and ancestor’s siblings.) Thus, the class of eligible transferees is the same as the class of family members who can have an ownership in a qualified family-owned business entity at the time of the decedent’s death.

The language of the new law does not state that the exemption applies to a transfer in trust for the benefit of family members included in the class of eligible transferees. Accordingly, it may be that only outright transfers qualify, but further clarification is necessary.

Also, because transfers to a spouse are already taxed at a 0% rate, the new exemption provides no immediate advantage in the case where a decedent transfers his or her business interest entirely to his or her spouse.

Continuing Requirements

The exemption applies so long as a qualified transferee continues to own the transferred interest for at least seven years after the decedent’s death. If the exemption is lost, the business interest will be subject to tax as though the exemption never applied, with interest accruing from the original due date that otherwise would have been in effect. The owner at the time of the disqualification will have the personal obligation to pay the resulting tax and interest. During the seven-year period, each owner must certify to the Department of Revenue on an annual basis that the interest continues to be owned by an eligible transferee. Any transaction or occurrence that causes the qualified family-owned business interest to fail to qualify for the exemption must be reported to the Department of Revenue wi

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Trusted and Cost-Effective Business Law, Business Litigation and Estate Planning Attorneys and Counselors; Building Client Confidence™ with Businesses and Individuals Since 1975

Our firm offers individualized solutions and the highest quality, client-driven and cost effective legal services. Houston Harbaugh, P.C., is a well-known law firm in Pittsburgh, serving Pennsylvania, West Virginia and Ohio. Our diverse practice areas include Business Law, Business Litigation, Estate and Succession Planning, Intellectual Property Litigation and Prosecution, Employment and Labor, Employee Benefits, Oil and Gas, Landowner and Property Dispute Counseling and Litigation, Health Care, Environmental, Real Estate, Construction, Complex Tort and Catastrophic Injury Litigation, Insurance coverage and Bad Faith Law, Mediation, Arbitration and Special Master appointment work. As one of the 20 largest law firms in Pittsburgh, our lawyers serve clients on a regional and national basis.

We regularly represent regional, national and international insurance carriers in defense, insurance coverage, unfair trade practices and bad faith matters, and we issue opinions letters and coverage analyses for insurers. We defend designers, manufacturers and sellers in pharmaceutical, products and medical products liability matters and we litigate and try cases involving catastrophic injuries, industrial accidents, toxic torts, professional, engineering and architectural negligence, and agent and broker claims and lawsuits.

Why Houston Harbaugh, P.C.? The Answer Is Clear.

We are accomplished litigators with a strong track record of success in the courtroom and in jury trials. We design and manage business transactions, succession planning, banking and regulatory issues. Our firm has regularly been featured in the U.S. News “Best Lawyers”® rankings of Pittsburgh’s “Best Law Firms.” Our attorneys are also regularly nominated as “Best Lawyers” in this publication. In addition, many of our attorneys are consistently recognized in the annual national Super Lawyers peer review rankings, and our corporate practice has been selected as the winner of The Legal Intelligencer’s Best Law Firm Corporate Practices contest for the Midsize Firm category. Our property and landowner counseling and litigation practice in Oil and Gas and Real Estate is ranked at the top on a regional basis. We help clients to apply for, prosecute, audit, manage and protect intellectual property rights in patent, trademark, copyright and trade secrets. We are admitted to the USPTO and have experience in the TTAB. Some of our firm’s shareholders are Adjunct Professors of Law at the Duquesne University School of Law in litigation and intellectual property courses.

Helping You Achieve Your Goals For Over 40 Years

Since our inception as a health care practice in 1975, our attorneys have represented clients in state and federal courts in Pennsylvania, West Virginia, Ohio and throughout the nation. We have grown into a multi-disciplinary practice with the ability to handle complex business transactional and litigation matters. We counsel on estate and succession planning and on trust and guardianship matters. We have a strong employment and labor practice. We represent clients in trade secret counseling and federal Defend Trade Secret Act (DTSA) counseling and litigation. Our DTSALaw® practice group is well versed in this federal body of trade secret law. We counsel, draft, litigate and defend claims involving employment non-compete, restrictive covenants, non-disclosure agreements and breach of contract matters. We service clients in the collection of debts and in bankruptcy creditor matters. Houston Harbaugh litigates in Orphans and Probate courts for matters involving estates and trusts. We also provide mediation and arbitration services to parties involved in litigation and our lawyers are currently serving as court appointed special masters in the Federal Courts.

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