Estate and Trust Administration

 

 

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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 or her 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 the 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?

NOTE: 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 as executor in the required format to the beneficiaries and certain family members.

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Advertise the grant of letters in qualified newspapers.

 

 

UNDERSTANDING THE TERMS OF THE WILL

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The Will is the "blueprint" that instructs the executor in terms of 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.

 

 

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.

 

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"

 

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 acting as custodian.

 

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

    Life insurance policies

    Annuities

    Retirement accounts, etc.

 

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 tax, 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 the name of the estate. The executor(s) should be the only signator(s) on the account.

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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 as required by the local Orphans’ Court.
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A Fiduciary Account detailing all transactions that will have occurred during the estate administration process will have to be prepared by the conclusion of the estate.

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It is far better to maintain the Account as you go, such as on a monthly basis, than to start one from scratch at the end of the administration process.

 

 

PAYING DECEDENT'S DEBTS, INCOME TAXES,

AND ESTATE ADMINISTRATION EXPENSES

 

Debts of Decedent

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Give statutory notice to known creditors of the decedent.

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Determine if the estate is subject to a claim for reimbursement under the Medicaid estate recovery program.

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, if necessary, 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

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Review with your attorney the anticipated costs and expenses of the estate.

 

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Executor's Commission

Understand how it is computed.

When to take it?

NOTE:  The commission is both taxable income to the executor and a deduction to the estate for tax purposes.

When you may want to waive it.

 

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Attorney's Fees

Review the various methods for computing a reasonable fee.

Agree on the method that you and your attorney are both comfortable with.

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

Appraisal fees

Probate filing and inventory fees

Costs of packing, storing, and shipping items of tangible personal property

Repairs and improvements to the decedent's home, if applicable

Costs of maintaining the home pending sale

Real estate and other sales' commissions payable to brokers and dealers

 

 

PAYING FEDERAL AND STATE DEATH TAXES

Federal Estate Tax

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The federal estate tax is 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 in 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.

 

NOTE FOR 2010:  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 amount of only $1 million.

 

 

Pennsylvania Inheritance Tax

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The inheritance tax is assessed on the transfer of taxable property to the decedent's probate and non-probate beneficiaries (except the surviving spouse).

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It differs from the federal estate tax in its definition of what constitutes the "gross estate."

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The inheritance tax is imposed at different rates, depending on the relationship between each beneficiary and the decedent.

There is a zero (0%) 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 either to have the value of the non-spousal remainder interest taxed at the decedent's death or to have the value of the entire trust property taxed 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.

 

NOTE: Other states will have the right to impose their own death tax 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.

 

 

CLOSING THE ESTATE: DISTRIBUTING THE ASSETS

AND BEING DISCHARGED FROM FIDUCIARY LIABILITY

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There is a fundamental duty to account to the beneficiaries and any 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 a Fiduciary Account for an estate 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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There are two 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.  The final distribution can be pursuant to:

1.  Court Decree, following the Court's review and approval of the Fiduciary Account after it is filed with the Court, or

2.  Private Family Settlement Agreement, where the Fiduciary Account is disclosed only to the beneficiaries. 

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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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Lifetime trusts that the decedent had created should also be terminated and the assets distributed to the beneficiaries entitled to them.

 

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."

 

 

 

 

DISCLAIMER

Martin J. Hagan is licensed to practice law in the Commonwealth of Pennsylvania. This website is intended solely for informational use and is not intended to solicit clients. Likewise, any information contained in or obtained from this web site is for informational purposes only and is not intended to be used as legal advice.

IRS CIRCULAR 230 DISCLAIMER:   Pursuant to Treasury guidelines, any tax advice contained in this website (or any link from it) does not constitute a formal opinion. Accordingly, any tax advice contained in this website (or any link from it) is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be asserted by the Internal Revenue Service. You should seek advice based on your particular circumstances from an independent tax advisor.

Send mail to mhagan@haganlaw.net  with questions or comments about this web site.
Copyright © 2010  Martin J. Hagan, One Gateway Center - 8 South; Pittsburgh, PA 15222-1435
Last Updated: 08/13/10