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How taxes and debts are paid from a decedent’s estate

On Behalf of | May 31, 2022 | Probate and Estate Administration | 0 comments

Paying the decedent’s taxes and debts from the estate funds are part of the probate process in Pennsylvania. As noted by SmartAsset, certain heirs may incur an inheritance tax as a result of inheriting assets. Surviving spouses, however, have a “0” inheritance tax rate.

There are inheritance taxes of 4.5% on the decedent’s direct lineal descendants, including children, grandchildren, etc. Assets left to siblings may incur a 12% tax. All other heirs may pay a 15% tax. When leaving property to a nonprofit organization, the transfer is tax-free.

Paying taxes and creditors from the available assets

Before distributing property to beneficiaries, the estate’s personal representative must file an inheritance tax return and the decedent’s final income tax returns. The representative may pay any outstanding taxes from money left in the estate. The personal representative is also required to publish a notice of the estate administration in a local newspaper and a legal newspaper to give notice to creditors who can file claims against the estate within 1 year of advertisement. notes that beneficiaries must wait and may not receive their inheritances until after creditors resolve their claims and taxes are paid The personal representative typically notifies creditors and works on determining if there are sufficient assets to the creditors in full.  State law determines the priority for creditors’ claims.

Speeding up the process so heirs may receive assets sooner

Money left in certain financial accounts may transfer directly to heirs when the owner dies. By naming a payable-on-death beneficiary, an heir may receive money from the decedent’s checking or savings account. Creditors and tax officials generally may not recover unpaid balances from payable-on-death accounts.  However, inheritance taxes will still be due.

Insurance companies may also pay beneficiaries listed on policies after receiving a copy of a decedent’s death certificate and completed claim forms.  These insurance proceeds are not subject to inheritance taxes or the claims of creditors.

Probate in Pennsylvania is the process of administering the decedent’s estate, collecting assets, resolving outstanding debts, paying taxes and eventually transferring properties to heirs. Planning ahead may help to speed up the process of settling a decedent’s estate.