I. OPENING AN ESTATE
When a person dies owning assets in his or her name alone, an estate must be "opened" by a personal representative to handle the assets and to settle the decedent's affairs. The estate is opened by filing a Petition for Grant of Letters with a death certificate with the local Register of Wills. An attorney should prepare the Petition and file it to ensure that all matters are done properly. A fee is charged to file this Petition. For an estate estimated to be worth $100,000.00, the fee to file the Petition will be about $160.00. The personal representative must take an oath before the letters are granted.
A. Dying Testate and Probate
If the decedent died testate, the original Will must be filed along with the Petition. This procedure is known as "probate." If the Will is notarized, it is "self-proving" otherwise two witnesses must prove the decedent's signature. After the Will is probated, Letters Testamentary will be issued to the personal representative named in the Will, who is now known as the executor (male) or executrix (female).
B. Dying Intestate (Without a Will)
When one dies without a Will, the Register of Wills issues Letters of Administration to the personal representative, who is known as the administrator or administratrix. The Letters are only granted to certain individuals, with priority as follows:
- Residuary legatees under a Will
- Surviving spouse
- Intestate heirs (preference given to the closest relations)
- Principal creditors of the decedent at the time of his or her death
- Other fit persons
Letters Testamentary and Letters of Administration state that the personal representative has been appointed. A fiduciary bond may be required to protect the assets of the estate. To show the personal representative's authority, "short certificates" are issued by the Register of Wills for a fee of $5.00 each.
II. DUTIES OF THE PERSONAL REPRESENTATIVE
The personal representative uses the estate assets to pay the decedent's debts and obligations, income taxes, inheritance taxes and/or estate taxes, communicates with the beneficiaries or heirs, prepares and files certain documents with the Register of Wills and makes distribution to the beneficiaries or heirs.
A. Safeguarding and Collecting Assets
One of the duties of the personal representative is to safeguard the decedent's assets so that they are not stolen, lost or destroyed. This may mean changing locks on the decedent's home, renting a safe deposit box to store decedent's jewelry, stocks and coin collection or locking decedent's car in a garage. Part of safeguarding the assets is to check the decedent's insurance policies to make sure that adequate coverage exists to protect the decedent's home, household furnishings, personal effects and car. There are many different types of assets about which the personal representative has to be concerned.
The estate must be advertised for three (3) successive weeks in a legal newspaper (i.e., The Pittsburgh Legal Journal) and a newspaper of general circulation (i.e., The Pittsburgh Post-Gazette). These ads must include the name of the deceased, the name and address of the personal representative and the personal representative's attorney. The fee charged for advertising is about $200.00.
C. Notification of Beneficiaries or Heirs
The personal representative or counsel must notify the beneficiaries or the heirs about the death of the decedent within three (3) months of the grant of the Letters. If the decedent died testate, a copy of the Will may be included. A Certificate is filed to show that notification was made. Charitable beneficiaries are also entitled to notice.
D. Filing the Inventory
The personal representative files an Inventory of the decedent's assets at the same time as the Pennsylvania Inheritance Tax return, that is, within nine months of death. The Inventory lists only those assets titled in the sole name of the decedent at death. Life insurance proceeds, "in trust for" or joint bank accounts or other assets not passing to beneficiaries or heirs under a Will or the intestacy laws are not included.
E. Status Reports
A status report must be filed with the Register of Wills within nine months of the date of death. Even if no Inheritance Tax return is to be filed, the status report must be filed. In addition, status reports must be filed annually until the estate is closed.
F. Payment of Expenses, Taxes and Debts
The estate will have to pay certain expenses, taxes and debts. If there are not enough assets to pay all of the monies owed by the Estate, the personal representative must follow a certain priority of payment, subject to any preference given to claims due to the United States for unpaid income or other federal taxes:
- Costs of administration
- Family exemption - $3,500.00 payable to the decedent's spouse, children or parents provided that said person or persons were living with the decedent at the time of death
- Costs of funeral and burial and claims by the Department of Human Services or costs for medical and nursing services rendered within six (6) months of death and employee services rendered within six (6) months of death and claims of the Commonwealth of PA.
- Cost of a gravemarker
- a. Claims by PA b. Rents for residence for 6 months prior to death
- All other claims
G. Pennsylvania Inheritance Taxes
- Property Subject To Tax
All property in a decedent's estate, along with any property that is worth over $3,000 which is transferred by the decedent within one year of his or her death, is subject to Pennsylvania inheritance tax. If property was held jointly by the decedent and another with right of survivorship, it is only taxed as to that percentage that was considered to be held by the decedent at the time of his or her death (i.e., 50% if two joint owners, 33 1/3% if three joint owners)
- Property Not Subject to Tax
Certain property is not subject to Pennsylvania inheritance tax such as:
a) Property held jointly by husband and wife when the first spouse dies
b) Property transferred by the decedent to domestic governmental bodies
c) Property transferred by the decedent to charities
d) Life insurance proceeds
e) Certain property located outside of Pennsylvania but owned by a Pennsylvania resident
f) Intangible personal property of nonresidents
g) Social Security and government death benefits
h) Certain retirement benefit plans or IRAs if decedent was under 59 ½.
Certain items can be deducted from the decedent's gross estate to calculate the amount of Pennsylvania inheritance tax that may be due:
a) Administrative Expenses for the Estate including filing fees, advertising costs, attorneys fees and costs, appraisal costs, etc.
b) Funeral and Burial Expenses
c) Family Exemption of $3,500.00
d) Federal and state income taxes
e) Property taxes for real estate and personal property
f) Death taxes from other states and foreign countries
g) Local taxes
h) Decedent's liabilities including, but not limited to
i) Debts based on contract or agreement
ii) Usual household bills
iii) Medical bills of decedent's last illness not paid by other source
iv) Checks written but not cashed at time of decedent's death
v) Mortgage debts
vi) Loans and credit card charges
- Tax Rate and Discount
a) For Spouses: Zero (0%) percent
b) Four and One-Half (4.5%) Percent: Property transferred to lineal descendants such as children, grandchildren, parents, etc.
c) Twelve (12%) Percent: Siblings
d) Fifteen (15%) Percent: All other people
e) Charities are exempt from Pennsylvania inheritance tax
f) Five (5%) percent discount on tax paid within 3 months of death.
- Time for Filing
The Inheritance Tax Return must be filed and the taxes must be paid within nine (9) months of death. Extensions for filing can be granted. After nine months, interest and penalties can start to accrue.
H. Federal Estate Tax and Pennsylvania Estate Tax
On certain estates, federal estate taxes may be due. Gross value calculations for federal estate tax purposes are different than those for Pennsylvania inheritance taxes and are best handled by an attorney or accountant. A unified tax credit is available to offset federal estate tax to zero those taxes on estates with a gross value of $5,450,000 or less in 2016. No federal estate tax is due unless the estate is worth more than $5,450,000. If federal estate taxes are due, the rates are much higher. If an estate is subject to federal estate tax, it may also be subject to Pennsylvania estate tax.
I. Closing the Estate and Distribution
At a certain point in the administration, the estate will be ready to make distribution of its remaining assets. This distribution can be accomplished in three (3) ways:
- Formal Accounting
If an estate is valued at over $25,000.00, involves many beneficiaries or heirs or creditors or is complicated, the best way to complete the administration process is by filing an Account with the Orphans' Court, which details all of the receipts and disbursements by the estate and the balance remaining for distribution. The estate will be scheduled for an audit at which time any unpaid or dissatisfied creditors or beneficiaries or heirs can raise questions or objections. Following the audit, the court will issue a Decree of Distribution, which states what each beneficiary or heir is to receive and permits the personal representative to make distribution of the estate assets.
- Family Settlement Agreement
If all creditors have been paid and the estate is distributable only to family members who are all in agreement, a formal accounting may not be needed. A family settlement agreement can be signed by all parties, including the personal representative, which can be less time consuming and expensive.
- Small Estates Under $25,000.00
If the gross value of the estate is less than $25,000.00, the personal representative can file a petition asking the Orphans' Court to permit distribution. The petition must list the assets and the expenses or debts that must be paid as well as showing that the inheritance taxes have been paid.