OUTLINE
OF PENNSYLVANIA ESTATE ADMINISTRATION
A. PROBATING THE WILL AND QUALIFYING AS EXECUTOR
Follow the steps necessary for probating a Will and
being appointed as executor.
Determine where the Will should be probated.
What to do if there is no valid Will?
If there is no valid Will, Pennsylvania's intestate law will then dictate who will
receive the decedent's property and who will be qualified to serve as the administrator of the estate.
Duty to notify the beneficiaries and family after
appointment.
B. UNDERSTANDING THE TERMS OF THE WILL
The Will is the "blueprint" that
instructs the executor on how to administer the estate and where to distribute
the assets.
Be sure to review with your attorney the meaning of
the Will's terms and conditions.
C. COLLECTING THE ESTATE’S ASSETS
Recognize the distinction between "probate" and
"non-probate" property
Only probate property passes under the Will and is
subject to the executor's control
Probate property is any property that is:
Titled in the decedent's sole name
Titled in both the decedent's name and names of
others, but without survivorship rights (to the extent of the decedent's
percentage interest)
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:
Jointly owned property with right of survivorship,
regardless of who contributed to it
Tenancy by the Entireties (husband and wife)
property
Contract-based property payable to anyone other than
the "estate"
Lifetime (Inter Vivos) Trust assets where the Trust
names death-time beneficiaries other than the "estate"
"ITF" "POD," or "TOD" property
"PUTMA" and "PUGMA" assets where the decedent was
the custodian.
Review with your attorney:
Title on deeds, bank account signature cards, stock
certificates, etc.
Beneficiary designations on 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 taxes, whether or not it passes under the Will.
D. GETTING STARTED IN ESTATE ADMINISTRATION
Conduct thorough search to uncover all of the
decedent's property
Close out the decedent's bank accounts, and open
up a new bank account in name of the estate
Obtain a Tax Identification Number for the estate from
the IRS
Make sure the decedent's real estate and tangible personal property
are adequately insured and protected
Determine if there is any real estate or tangible
personal property located in other states
Examine any business interests in which the decedent
was actively involved
Obtain date-of-death values of all assets, both
probate and non-probate
Maintain an inventory of all probate property
An Inventory must be filed with the Register of Wills
Provide information to your attorney on a regular
basis so that an Estate Fiduciary Account can be maintained in the format
required by the local Orphans’ Court
An Estate Fiduciary Account detailing all
transactions in the estate will have to be prepared at the conclusion of the
estate. It is far better to maintain the Account as you go than to
start it from scratch at the end.
E. PAYING DECEDENT'S DEBTS, INCOME TAXES, AND ESTATE
ADMINISTRATION EXPENSES
Debts of Decedent
Place legal advertising of the grant of letters
Give notice to known creditors
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
Review with your attorney the enforceability of any
questionable debts
Prioritize the payment of debts if the estate will be
insolvent.
Income Taxes
Satisfy the decedent's personal income tax liability
(filing and payment) for the year of death and any prior open years
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
Choose a tax-wise fiscal year for the estate.
Estate Administration Expenses
Review with your attorney the anticipated costs and
expenses of the estate
Executor's commission
Understand how it is computed
When to take it
The commission is both taxable income to
the executor and a deduction for fiduciary income tax purposes
When you may want to waive it
Attorney's fee
Ask your attorney to explain the various methods
for computing a reasonable fee, and come to an agreement with your
attorney on the method
you both are 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
Miscellaneous Expenses
Appraisal fees
Filing fees paid to the Register of Wills
Office for probate,
the inventory, and possibly the fiduciary account
Costs of packing, storing, and shipping items of
tangible personal property
Repairs and improvements to the decedent's home,
if applicable, in anticipation of its sale, and the costs of maintaining
the home (real estate taxes, insurance, lawn care, etc.) pending sale
Real estate and other sales' commissions payable
to brokers and dealers
F. PAYING FEDERAL AND STATE DEATH TAXES
Federal Estate Tax
A tax imposed on the value of the decedent's
"taxable estate" (gross estate reduced by allowable deductions), offset by
the applicable credit amount and the state death tax credit or deduction in
effect in the year of death
Discuss with your attorney the amount of the
estate tax credit (and its exemption equivalent) applicable to the year of
death.
Lifetime taxable gifts will affect the federal
estate tax at death
Applicable credit amount otherwise available at death can
have been partially or completely used up by the decedent’s lifetime
taxable gifts
Be aware of the executor’s duties regarding
unreported lifetime gifts.
Deductions are allowed to reduce the taxable estate.
State inheritance taxes are now treated as a
deduction, not a credit, in computing the federal estate tax.
Pennsylvania Inheritance Tax
A tax assessed on the transfer of taxable
property to the decedent's probate and non-probate beneficiaries
Differs from federal law in its definition of the
"gross estate"
Inheritance tax is imposed at different rates,
depending on the relationship between each beneficiary and the decedent
Zero tax rate on transfers to the surviving spouse
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.
Discuss with your attorney the advantages and
disadvantages of each option.
Review with your attorney whether or not you should
take advantage of the prepayment discount option.
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).
Understand the sources for payment of the various
death taxes.
G. CLOSING THE ESTATE: DISTRIBUTING THE ASSETS AND BEING
DISCHARGED FROM FIDUCIARY LIABILITY
Fundamental duty to account to the beneficiaries and
unpaid creditors of the estate
This duty is fulfilled by submitting to such parties
the Estate Fiduciary Account,
which is a written statement of all
transactions that have occurred during the course of estate administration.
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.
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
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:
1. Distribution based on Court decree
2. Distribution under a private Family Settlement
Agreement
Discuss with your attorney the advantages and
disadvantages of each option.
Review with your attorney how long the administration
of your particular estate should be expected to last.
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."
