Pennsylvania law establishes the steps that must be followed in Estate Administration. Estate administration begins with the appointment of a Personal Representative (either an Executor or Administrator) through the Register of Wills Office in the county where the decedent resided. The Personal Representative takes important initial steps to gather the assets and debts of the estate, contacts beneficiaries, and provides legal notice of the individual’s death. The Personal Representative evaluates the assets and liabilities of the Estate and begins the process of paying any income and inheritance taxes owed, legally enforceable debts and taxes, and distributing the remaining property to the beneficiaries of the estate. It’s important that the Personal Representative follows a procedure in carrying out the above steps in the proper order. Pennsylvania has six classes of creditors and the Personal Representative needs to ensure that all obligations of the estate have been satisfied before distributing property to the beneficiaries.
With a Will (Testacy)
Pennsylvania law establishes the steps that must be followed in Estate Administration. Estate administration begins with the appointment of a Personal Representative (either an Executor or Administrator) through the Register of Wills Office in the county where the decedent resided. The Personal Representative takes important initial steps to gather the assets and debts of the estate, contacts beneficiaries, and provides legal notice of the individual’s death. The Personal Representative evaluates the assets and liabilities of the Estate and begins the process of paying any income and inheritance taxes owed, legally enforceable debts and taxes, and distributing the remaining property to the beneficiaries of the estate. It’s important that the Personal Representative follows a procedure in carrying out the above steps in the proper order. Pennsylvania has six classes of creditors and the Personal Representative needs to ensure that all obligations of the estate have been satisfied before distributing property to the beneficiaries.
Without a Will (Intestacy)
When someone dies without a valid Will in place, s/he is said to die intestate. In this case, the Pennsylvania law determines who inherits the assets and the order of eligibility of family members or others to become the Estate’s Administrator. Similar to the Executor, the Administrator is appointed through the Register of Wills Office. A common misconception is that if a married individual dies without a Will that his or her spouse will “get everything”. That’s only true if the decedent had no surviving children or parents. The surviving spouse does not “get everything” but will probably get a headache because there is no valid Will.
Going to Probate
Probate is the legal process to settle an estate. Its purpose is to provide the roadmap to successfully paying the estate’s obligations and giving the balance to the appropriate beneficiaries. Most estates include some property subject to probate regardless of whether the deceased had a Will.
Will Challenges
Because Wills are viewed by the courts as expressing the wishes of the deceased, the vast majority of wills pass through probate. However, there are some valid reasons to challenge a Will:
- If the deceased did not understand the consequences of the Will
- If the Will was the result of fraud, forgery or manipulation of the deceased
- If a newer will is discovered
- If there weren’t sufficient or appropriate witnesses
Family Settlement Agreements
Part of Estate Administration is formally closing the estate. This can be done through a formal accounting which is then filed with the Orphan’s Court. Another way with a Family Settlement Agreement. This is a contract which is signed by everyone who benefits from the estate agreeing that the assets and debts of the estate have been properly resolved and protects the Executor from future liability.
Pennsylvania Inheritance Taxes
Inheritance taxes are often paid off the top by the estate before beneficiaries receive assets from the estate. Deductions from the gross estate are allowed for certain estate administrative costs, family exemptions and expenses prior to determining the PA inheritance tax due. Pennsylvania has no exemption amount and the tax is applied on the first eligible dollar of the net probate estate. The tax is calculated based on the value of a decedent’s estate received by each beneficiary and that beneficiary’s relationship to the decedent.
- 0% on transfers to a surviving spouse or to a parent from a child aged 21 or younger
- 0% on transfers to charitable organizations, exempt institutions and other government entities exempt from tax
- 4.5% on transfers to direct descendants and lineal beneficiaries
- 12% on transfers to siblings
- 15% on transfers to any other beneficiary such as friends.
While life insurance proceeds are not subject to the PA inheritance tax, it is important to remember that the inheritance tax is applied to both probate and non-probate assets.
Property owned jointly between spouses is exempt from inheritance tax. Property owned jointly with any other person is taxed at the above rates depending on the relationship between the co-owners multiplied by ½ the value of property to reflect the decedent’s interest that is being passed to the surviving joint owner.
If an Inheritance tax payment is made within 90 days of the individual’s death, there is a 5% discount on the inheritance tax owed. The final tax return and payment is due nine months after the individual’s death.
Federal Estate Taxes
Under the 2018 tax law, the federal estate tax exemption is $11.2 million per individual which is adjusted annually for inflation. Additionally, if the first spouse does not need to use the exemption, the surviving spouse has a $22.4 million exemption upon death. Needless to say, the number of estates that have to pay this tax is minimal; it’s estimated at less than 0.003% of all estates nationwide! People often have been bombarded for years with false or distorted information about this tax. If it applies to you, congratulations! You have done extremely well for yourself and there are numerous planning methods to avoid the federal estate tax!
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To discuss your Estate Administration concerns, contact us at 610-639-1666.
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