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OUTLINE OF
PENNSYLVANIA ESTATE
AND TRUST ADMINISTRATION
The following is an
outline of the steps that are taken in administering a typical estate in Pennsylvania,
including those that also involve a trust that was established by the decedent
during his lifetime.
It is intended to acquaint new personal representatives and trustees in a general way with
what their duties may entail. Specific issues that may arise in a particular
estate and/or trust should be discussed with your attorney.
PROBATING THE WILL AND QUALIFYING AS EXECUTOR
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Follow the steps necessary for probating a Will and
being appointed as executor.
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Determine where the Will should be probated.
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What to do if there is no valid Will?
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If there is no valid Will, Pennsylvania's
intestate succession statute will dictate who
will receive the decedent's probate property and what their respective shares will be, as well as who will be qualified to serve as the administrator(s) of the estate.
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Provide notice of
your appointment in the required format to the beneficiaries and certain
family members.
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UNDERSTANDING THE TERMS OF THE WILL
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The Will is the "blueprint" that
instructs the executor on how to administer the estate and where to distribute
the assets.
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Be sure to review with your attorney the meaning of
the Will's terms and conditions.
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COLLECTING THE ESTATE’S ASSETS
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Recognize the distinction between "probate" and
"non-probate" property.
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Only probate property passes under the Will and is
subject to the executor's control.
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Probate Property is any property that is:
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Titled in the decedent's sole name
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Titled in the
names of decedent and others, but without survivorship rights
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Contract-based benefits (e.g., life insurance or
annuities)
payable to the "estate"
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Non-Probate Property is any property that does not
pass under the Will. Examples:
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Jointly owned property with right of survivorship
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Tenancy by the Entireties (husband and wife)
property
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Contract-based property payable to anyone other than
the "estate"
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Lifetime (Inter Vivos) Trust assets
not payable to the "estate"
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"ITF" "POD," or "TOD" property
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"PUTMA" and "PUGMA" assets where the decedent was
the custodian.
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Review with your attorney:
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Title on deeds, bank account signature cards, stock
certificates, etc.
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Beneficiary designations on
contract-type assets, such as
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Life insurance
policies
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Annuities
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Retirement
accounts, etc.
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TAX NOTE: For purposes of estate and inheritance
taxes, the distinction between probate and non-probate property is ignored.
Generally, all property that the decedent owned at the time of death is subject to
death taxes, whether or not it passes under the Will.
GETTING STARTED IN ESTATE ADMINISTRATION
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Conduct thorough search to uncover all of the
decedent's property. |
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Close out the decedent's bank accounts, and open
up a new bank account in name of the estate. |
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Obtain a Tax Identification Number for the estate from
the IRS.
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Make sure the decedent's real estate and tangible personal property are adequately insured and
protected.
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Determine if there is any real estate or tangible
personal property located in other states. |
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Examine any business interests in which the decedent
was actively involved. |
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Obtain date-of-death values of all assets, both
probate and non-probate. |
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Maintain an inventory of all probate property
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An Inventory must be filed with the Register of Wills |
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Provide information to your attorney on a
regular basis so that a fiduciary account can be regularly updated in the format
required by the local Orphans’ Court.
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A Fiduciary Account detailing all
transactions that will have occurred during the estate will have to be prepared at
its conclusion. |
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It is far better to maintain the Account as you go than to
start it from scratch at the end. |
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PAYING DECEDENT'S DEBTS, INCOME TAXES,
AND ESTATE ADMINISTRATION EXPENSES
Debts of Decedent
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Place legal advertising of the grant of letters |
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Give notice to known creditors |
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Determine if the estate is subject to a claim
for reimbursement under the Medicaid estate recovery program.
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If so, give notice to the Department of Public
Welfare. |
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Review with your attorney the enforceability of any
questionable debts. |
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Prioritize the payment of debts if the estate will be
insolvent. |
Income Taxes
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Satisfy the decedent's personal income tax liability
(filing and payment) for the year of death and any prior open years. |
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Have fiduciary income tax returns prepared and filed
for each fiscal year in which the estate remains open, to report all
post-mortem income, deductions, and credits. |
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Choose a tax-wise fiscal year for the estate. |
Estate Administration Expenses
Review with your attorney the anticipated costs and
expenses of the estate.
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Executor's
Commission
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Understand how it is computed.
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When to take it.
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NOTE: The commission is both taxable income to
the executor and a deduction to the estate for tax purposes.
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When you may want
to waive it. |
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Attorney's
Fee
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Review the various methods for computing a reasonable
fee. |
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Agree on the method that you and your attorney are both comfortable
with. |
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Once agreed upon, the basis for computing the
fee should be set forth in the engagement letter that you sign with the
attorney. |
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Miscellaneous Expenses
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Appraisal fees |
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Probate filing fees |
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Costs of packing, storing, and shipping items of
tangible personal property |
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Repairs and improvements to the decedent's home,
if applicable |
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Costs of maintaining the home pending sale |
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Real estate and other sales' commissions payable
to brokers and dealers |
PAYING FEDERAL AND STATE DEATH TAXES
Federal Estate Tax
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A tax imposed on the value of the decedent's
"taxable estate" (gross estate reduced by allowable deductions), offset by
the applicable credit amount in effect for the year of death plus a special deduction
for state death taxes paid to one or more states.
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Discuss with your attorney the amount of the
estate tax credit (and its exemption equivalent) applicable to the year of
death.
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Lifetime taxable gifts will affect the federal
estate tax at death.
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The applicable credit amount otherwise available at death
may have been partially or completely used up by the decedent’s lifetime
taxable gifts.
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Be aware of the executor’s duties regarding
unreported lifetime gifts.
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Deductions are allowed to reduce the taxable estate.
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NOTE: Under
the "sunset" provisions of the 2001 federal statute known as EGTRRA, no
federal estate tax will be imposed on estates of decedents whose deaths
occur in calendar year 2010. (Congress may try to change that rule and make
the tax retroactive to January 1, 2010.) However, EGTRRA reimposes the
estate tax for all decedents dying after December 31, 2010, with an
exemption of only $1 milllion.
Pennsylvania Inheritance Tax
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A tax assessed on the transfer of taxable
property to the decedent's probate and non-probate beneficiaries.
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Differs from federal law in its definition of the
"gross estate."
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Inheritance tax is imposed at different rates,
depending on the relationship between each beneficiary and the decedent.
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Zero tax rate on transfers to the surviving spouse.
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If a trust is created for the sole lifetime use of
the surviving spouse, the executor can elect to have the value of the
non-spousal remainder interest taxed at the decedent's death or when the
surviving spouse dies.
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Discuss with your attorney the advantages and
disadvantages of each option.
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Review with your attorney the prepayment discount option.
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NOTE: Other states will have the right to impose
their own death taxes on the decedent's real estate or tangible personal property
that is located within such states (Pennsylvania will not tax such items).
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Understand the sources for payment of the various death taxes.
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CLOSING THE ESTATE: DISTRIBUTING THE ASSETS
AND BEING DISCHARGED FROM FIDUCIARY LIABILITY
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Fundamental duty to account to the beneficiaries and
unpaid creditors of the estate.
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This duty is fulfilled by submitting to such parties
the Fiduciary Account,
which is a written statement of all
transactions that will have occurred during the course of estate administration.
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Estate Fiduciary Accounts must conform to the applicable Pennsylvania
Supreme Court rules. The format of the Estate Fiduciary Account differs significantly from
that of a business financial
statement.
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Discuss with
your attorney whether or not it may be prudent to make advance distributions
to the beneficiaries prior to the termination of the estate.
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Options for making the final distribution of assets to the beneficiaries, and
for the executor to be released from further duties, at the conclusion of the
estate.
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Distribution
based on
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Court
Decree, or |
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Distribution under a private Family Settlement
Agreement. |
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Discuss with your attorney the advantages and
disadvantages of each option.
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Review with your attorney how long the administration
of your particular estate should be expected to last.
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If a lifetime trust had been established by the decedent, the will may simply
direct the executors to transfer the net probate assets to the trustees of
such trust for distribution or continued administration under the terms of the
trust.
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In some cases, the will may direct that a bequest be paid over to a trust to
be created under the terms of the will, and not outright to the beneficiary.
In such event, the executors should notify the persons or bank named as the
trustee, and distribute the assets to them once they are qualified to serve.
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FINAL ADVICE:
A LITTLE KNOWLEDGE CAN BE A
DANGEROUS THING.
Use a competent attorney who specializes in
estate and trust administration.
The goal is to "do things right the first time."
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