Pennsylvania Probate

 

Because of things they have heard from other people or from nationally known financial advisors, many people have an unrealistic fear of going to probate in Pennsylvania. Often, what they’ve heard applies to the probate process in other states. Probate in Pennsylvania is straight forward and quite simple. It typically takes less than 15 minutes to probate a Will. If someone advises you to create a Revocable Trust solely to avoid probate, you should get a second opinion. That individual is trying to sell you a more costly Revocable Trust in place of a simple, well drafted Will.

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Personal Representative

 

A Will typically guides the administration of an estate, but in cases where there is no Will, state law provides the estate roadmap. A Will designates the Executor as well as beneficiaries and includes other directions from the decedent to address the decedent’s specific plan for after his or her death. If the deceased does not have a Will, state law determines who inherits the assets, how debts will be paid and who is eligible to be the Administrator. An Estate will have an Executor or an Administer, but not both. They are both called a Personal Representative and follow the same process for probating an Estate.

There are several key steps to Pennsylvania’s probate process:

  • Probate the Will to appoint the Executor or have the Administrator appointed in cases with no Will.
  • Gather the deceased’s assets.This means identifying and securing the assets so that no one has access to them.
  • Pay the deceased’s debts including inheritance and other taxes in the proper order established by the Probate Code.
  • Distribute the remaining assets to the beneficiaries.

The Probate Process

 

The Probate process begins with the Register of Wills appointing an individual to oversee distribution of the Estate. The Executor or Administrator, aka Personal Representative, receives “short certificates” which provide the Personal Representative with legal authority to act on the Estate’s behalf.

In most cases, Pennsylvania’s procedure to settle an estate is the following:

  • The Will and a Petition for Probate are filed with the Register of Wills in the county where the deceased lived.
  • The Register of Wills issues “Letters Testamentary” to the Executor or “Letters of Administration” to the Administrator. Additionally, short certificates are issued to the Personal Representative to provide to any financial institution or other entity that requires proof of the Personal Representative’s authority to act on the Estate’s behalf.
  • The Personal Representative provides the beneficiaries with a Notice of Beneficial Interest concerning the Estate.
  • The Personal Representative arranges for Death Notice to be published in a newspaper of general circulation and a legal journal in the county where the deceased lived. Creditors can make a claim against the Estate up to one year after the date of publication.
  • If possible, a payment on the Inheritance taxes is made within ninety (90) days of death to receive the 5% discount. Full payment of the inheritance tax return is due within nine months of death.
  • The Personal Administrator files an inventory of the estate’s assets with the Register of Wills along with the PA Inheritance Tax return.
  • After creditors and taxes have been paid, a status report is issued to the Register of Wills stating that estate administration is completed. A formal accounting can be requested by any beneficiary or a Family Settlement Agreement can be reached by all concerned parties. A Family Settlement Agreement acknowledges that the Personal Representative has carried out his or her duties for the estate. The Family Settlement Agreement removes the need to prepare and attend a Formal Accounting procedure in the Orphans’ Court which can unnecessarily add to the time needed to close the estate.
  • Although the Personal Representative can make partial distributions to beneficiaries during the course of the estate administration, these are known as “at risk” distributions. That means that the Personal Representative is personally liable for distributing any assets prior to court approval of the formal accounting. It is not uncommon for partial distributions to occur but typically the final distribution is made in the last step of the process.

In Pennsylvania, Estates under $50,000 can ask the Court to use a Small Estates process. This process does not eliminate the need for filing Pennsylvania Inheritance taxes. If the Estate owns real property, probate will go through the regular process.

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
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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!

Probate vs. Non-Probate Assets

 

Some assets are known as non-probate assets. These assets do not go through probate because they specify the beneficiaries or have joint owners. Non-probate assets generally include:

  • Jointly owned real estate
  • Retirement accounts and Pensions with named beneficiaries
  • Life Insurance Policies with named beneficiaries
  • Bank Accounts with joint owners or that have named beneficiaries (Payable on Death)
  • Brokerage Accounts with joint owners or that have named beneficiaries (Transfer on Death)

Probate assets are any assets that are owned solely by the deceased. This includes the following:

  • Personal property, such as jewelry, furniture, and automobiles
  • Bank or financial accounts that are solely in the deceased’s name
  • Life insurance policies or brokerage accounts that lists the estate as the beneficiary
  • Real property titled solely in the decedent’s name or held as tenants in common
  • Ownership in a partnership, corporation, or limited liability company
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To discuss your questions about Probate, contact us at 610-639-1666.

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