Probating a Pennsylvania Estate

September 2, 2014 by

Probating estates is also referred to as estate administration which is the process of managing and distributing a person’s probate property after their death. If the person had a will, the will goes through probate, which is the process by which the deceased person’s property is passed to his or her heirs and legatees (people named in the will). The entire process usually takes about 18 months. However, distributions from the estate can be made in the interim.

Here we set out the steps the surviving family members should take. These responsibilities ultimately fall on whoever was appointed executor in the deceased family member’s will. You should meet with an attorney to review the steps necessary to administer the decedent’s estate. Bring as much information as possible about assets, taxes and debts. Estate administration in Pennsylvania include the following steps:

  1. 1. Filing the original will and Death Certificate at the County Register of Wills in order to be appointed executor. You will take an oath, sign the petition and pay a probate fee to get the letters testamentary issued to you appointing you as executor. In the absence of a will, heirs must petition the court to be appointed administrator of the estate and may have to post a bond.
  2. 2. Giving formal notice to all the beneficiaries named in the will, and then filing a report with the Register of Wills.
  3. 3. Collecting all the assets. This means that you have to find out everything the deceased owned. You need to file a list, known as an Inventory with the Register of Wills within nine months of the date of death. You will also need to open an estate bank account to consolidate all the estate funds. Bills and bequests should be paid from the estate bank account, so that you can keep track of all expenditures.

    4. 4. Paying the federal estate tax if applicable and Pennsylvania inheritance taxes. If the estate was over $5,490,000 then a federal estate tax return needs to be filed for 2017. If any assets pass to anyone other than the spouse you need to file a Pennsylvania inheritance tax return. If you prepay the Pennsylvania Inheritance Tax within three months of the date of the death you receive a 5% discount. The Pennsylvania inheritance tax return is due nine months after the date of death, but you can apply for a six month extension to file the return.

    5. Filing final income tax returns. You must also file a final federal and Pennsylvania income tax return for the decedent for the year of death. If the estate holds any assets and earns over $600 of interest or dividends, or over $600 from sales of property a fiduciary income tax return for the estate will need to also be filed.

    6. Paying the administrative expenses and all the debts of the estate. The estate needs to pay for the funeral, probate fees, attorney fees and other administrative expenses first. The secured creditors are paid next, and then the unsecured creditors are paid with whatever is left. If creditors are not paid in the proper order, the executor may be held personally liable for the estate’s debts.

    7. Filing a Disclaimer with the Orphan’s Court within 9 months of the date of death.

    8. Distributing property to the heirs and beneficiaries. Generally, executors do not pay out all of the estate assets until after all the known creditors are paid, and the period runs out for other creditors to make claims.

  4. 9. Notifying the Pennsylvania Attorney General for any specific bequests over $25,000 or any bequests paid as percentage of the estate or any charitable bequests that will not be made.
  5. 10. Filing an informal final account. The executor must file an informal final account with all the beneficiaries listing any income to the estate since the date of death and all expenses and estate distributions. Once the beneficiaries sign a receipt and release approving the informal final account, the executor can distribute whatever is left in the reserve, close the estate bank account and file a status report with the Register of Wills.

If you need help probating an estate please contact Gregory J. Spadea of Spadea & Associates, LLC at 610-521-0604.

Probating estates is also referred to as estate administration which is the process of managing and distributing a person’s probate property after their death. If the person had a will, the will goes through probate, which is the process by which the deceased person’s property is passed to his or her heirs and legatees (people named in the will). The entire process usually takes about 18 months. However, distributions from the estate can be made in the interim.

Here we set out the steps the surviving family members should take. These responsibilities ultimately fall on whoever was appointed executor in the deceased family member’s will. You should meet with an attorney to review the steps necessary to administer the decedent’s estate. Bring as much information as possible about assets, taxes and debts. Estate administration in Pennsylvania include the following steps:

  • 1. Filing the original will and Death Certificate at the County Register of Wills in order to be appointed executor. You will take an oath, sign the petition and pay a probate fee to get the letters testamentary issued to you appointing you as executor. In the absence of a will, heirs must petition the court to be appointed administrator of the estate and may have to post a bond.
  • 2. Giving formal notice to all the beneficiaries named in the will, and then filing a report with the Register of Wills.
  • 3. Collecting all the assets. This means that you have to find out everything the deceased owned. You need to file a list, known as an Inventory with the Register of Wills within nine months of the date of death. You will also need to open an estate bank account to consolidate all the estate funds. Bills and bequests should be paid from the estate bank account, so that you can keep track of all expenditures.

    • 4. Paying the federal estate tax if applicable and Pennsylvania inheritance taxes. If the estate was over $5,490,000 then a federal estate tax return needs to be filed for 2017. If any assets pass to anyone other than the spouse you need to file a Pennsylvania inheritance tax return. If you prepay the Pennsylvania Inheritance Tax within three months of the date of the death you receive a 5% discount. The Pennsylvania inheritance tax return is due nine months after the date of death, but you can apply for a six month extension to file the return.

    5. Filing final income tax returns. You must also file a final federal and Pennsylvania income tax return for the decedent for the year of death. If the estate holds any assets and earns over $600 of interest or dividends, or over $600 from sales of property a fiduciary income tax return for the estate will need to also be filed.

    6. Paying the administrative expenses and all the debts of the estate. The estate needs to pay for the funeral, probate fees, attorney fees and other administrative expenses first. The secured creditors are paid next, and then the unsecured creditors are paid with whatever is left. If creditors are not paid in the proper order, the executor may be held personally liable for the estate’s debts.

    7. Filing a Disclaimer with the Orphan’s Court within 9 months of the date of death.

    8. Distributing property to the heirs and beneficiaries. Generally, executors do not pay out all of the estate assets until after all the known creditors are paid, and the period runs out for other creditors to make claims.

  • 9. Notifying the Pennsylvania Attorney General for any specific bequests over $25,000 or any bequests paid as percentage of the estate or any charitable bequests that will not be made.
  • 10. Filing an informal final account. The executor must file an informal final account with all the beneficiaries listing any income to the estate since the date of death and all expenses and estate distributions. Once the beneficiaries sign a receipt and release approving the informal final account, the executor can distribute whatever is left in the reserve, close the estate bank account and file a status report with the Register of Wills.

If you need help probating an estate please contact Gregory J. Spadea of Spadea & Associates, LLC at 610-521-0604.

Filed Under: Estate Planning, Real Estate Tagged With: , , , , ,

When Does an Estate Fiduciary Income Tax Return Need to be Filed

August 26, 2014 by

The estate must file a 1041 fiduciary income tax return if the estate has income or property sales over $600 during the tax year. So if the executor receives a 1099 under the Estate Tax Identification Number for over $600 of interest or dividend income, or real estate is sold in a subsequent year after death, a fiduciary income tax return will have to be filed. The federal estate fiduciary 1041 income tax return is due 3½ months after the close of the tax year.

Normally, estate fiduciary returns result in “excess deductions on termination”, which can be divided equally among all the beneficiaries, and used by them as itemized deductions on their personal federal income tax returns to increase their income tax refund.

There is no income tax on inheritances except to the extent that such items represent tax deferred items such as pension plans, annuities, IRA’s, and accrued E bonds or to the extent that they represent income earned after death, there is no inheritance tax on such post-death income. Income tax on such tax deferred items is due by the beneficiaries in the year they receive the income. A final federal income tax return for your loved one must be filed, assuming he met the filing threshold which for the 2014 tax year is $11,700, excluding social security for a decedent over the age of 65. In addition, if federal income tax was withheld, you would file to get the federal income tax refund regardless of the income earned.

There is never any Pennsylvania income tax due on inherited property including tax deferred property such as pension plans, IRA’s or annuities.

If there are U.S. Savings Bonds, the significant factors are: (a) the turnover date; and (b) income tax on accrued interest. The turnover date means that since bonds increase in value every six months, there is a loss of up to five months interest if cashing is not made in one of the two months in each year in which value increases. There are three choices with respect to reporting accrued interest on Savings Bonds: (1) Report it on the decedent’s final 1040 return; if he owes no tax, even with the interest included, this is the clear choice; (2) Report it on the estate’s fiduciary 1041 return, if this is done, ensure you have sufficient estate deductions to offset against the bond interest; or (3) Transferring the bonds without cashing, which makes sense if the beneficiary is in a low tax bracket.

If you were named as a beneficiary of an Individual Retirement Account (IRA), then you should consider the possibility of electing to stretch the pay-out over your own life expectancy if the plan administrator permits it. If not then you can take distributions over 5 years or elect to withdraw the entire balance. However, you must pay federal income tax on any distributions you receive in the year received.

Real estate, like stock, takes a stepped up basis at death, so that original cost to the decedent is irrelevant for income tax purposes. If you decide to sell a house and do not need the aid of a real estate agent to find a buyer, we can handle all the paperwork from the agreement of sale to closing for an additional fee. Keep in mind if you do not sell the property within fifteen months after the date of death we must value the property using the common level ratio or based on an appraisal.

Contact Gregory J. Spadea of Spadea & Associates, LLC at 610-521-0604 if you need help administering an estate or find yourself being appointed as an Executor.

Filed Under: Estate Planning, Real Estate, Tax Law Tagged With: , , , , , , ,

Wrongful Death Proceeds Are Not Subject to Pennsylvania Inheritance Tax or Federal Income Tax

August 4, 2014 by

The Pennsylvania Wrongful Death statute allows the personal representative of an estate to bring an action for the benefit of a decedent’s spouse, children or parents to recover damages for the death of the decedent caused by the wrongful act, neglect, unlawful violence of another. The statute entitles a plaintiff to recover damages for pain and suffering, loss of earning power, medical and hospital bills, funeral expenses and certain estate administration expenses.

Wrongful death proceeds are not taxable for Pennsylvania Inheritance purposes or for federal income tax purposes. On the other hand survival action proceeds are subject to Pennsylvania inheritance tax. Since Pennsylvania taxes survival actions but not wrongful death actions, you, through your attorney want to maximize the wrongful death recovery amount. The court tends to allocate the proceeds of wrongful death actions and survival actions based upon the facts of the case and the evidence presented by your attorney.

Under the Pennsylvania Probate, Estate and Fiduciary code the Pennsylvania Department of Revenue is an interested party in any orphan’s court proceeding. Therefore your attorney must get written consent from the Pennsylvania Department of Revenue regarding the proposed allocation since its interests will be adversely affected by the amount allocated to the wrongful death action.

Survival Actions are valued at the decedent’s date of death for Pennsylvania Inheritance tax purposes. Any unpaid Inheritance tax is due within thirty days after the estate receives the proceeds. If there is any tax due beyond thirty days the Pennsylvania Department of Revenue begins charging interest on the unpaid balance which is currently 6%.

Contact Gregory J. Spadea

If you have a question about a wrongful death action or survival action please contact Spadea & Associates, LLC online or at 610-521-0604, located in Ridley Park, Pennsylvania.

Filed Under: Estate Planning, Tax Law Tagged With: , , , , , , , , , , ,

Gifting as an Estate Planning Tool

June 20, 2014 by

Person being handed a house

The annual Exclusion for 2014 is $14,000 and is indexed for inflation so it will increase in the future. The person making the gift is the donor and the recipient of the gift is known as the donee. The donee never pays income tax on any gifts received because the Internal Revenue Code Section 102 specifically excludes gifts from income. If you have a large estate and want to use gifting to reduce your estate or inheritance tax you may want to consider one or all of the following strategies:

  • You can gift up to $14,000 in 2014 to any individual or you can make a joint gift with your spouse of $28,000 per year per person without affecting your $5.34 million estate tax exemption or unified credit. Keep in mind if you decide to gift a larger amount than the annual exclusion you can file a form 709 gift tax return and use up some of your $5.34 Million estate exemption.
  • You can also pay a donee’s tuition directly to the school which would not count toward the $14,000 annual exclusion.
  • If you pay a donee’s medical bills directly to the hospital or health care provider which also would not count toward the $14,000 annual exclusion.
  • You can also donate to a donee’s 529 College Savings Plan and give $70,000 individually or $140,000 with your spouse to make a joint gift to reduce your estate. However, if you give the maximum it wipes out your annual exclusion for that specific donee for the next 5 years. You can also change the donee in the future if that donee decides not to attend college. If the donee does attend college the amount withdrawn from the 529 plan to pay for tuition, books and fees are free of income tax.
  • If you have your own corporation or limited liability company (LLC) and you have a child or relative who works in the business, you can gift non-voting shares of the corporation or non- voting units of the LLC to that person over time but maintain control since you own all the voting shares.

    • If you have any questions about any of the gifting strategies listed above, feel free to contact Gregory J. Spadea at 610-521-0604. Gregory is the managing member of Spadea & Associates, LLC located in Ridley Park, Pennsylvania.

Filed Under: Estate Planning Tagged With: , , , , ,

Understanding Tenancy And Different Ways to Own Property

May 2, 2014 by

A paper cutout of a house

When two or more individuals own property whether it’s a home, or a piece of land, the relationship between the owners is known as “tenancy.” There are three common ways that a tenancy can be structured, and how it is done will determine such important considerations as whether an interest in the property will pass freely or by operation of law at an owner’s death and whether creditors can claim the property.

Tenancy comes in three common forms: tenancy in common, joint tenancy and tenancy by the entirety. Each has advantages and disadvantages so it is very important that the deed is properly drafted to accomplish its intended purpose. Otherwise, if the deed is not clear the state default rules will determine which form of tenancy applies and in Pennsylvania the default rule is tenancy in common.

Tenancy in common allows an owner the greatest flexibility to transfer the property. Each co-tenant in a tenancy in common has an interest in the property and is free to transfer this interest during life or through a will. The co-tenants can have different ownership interests; for example, three owners could own 3 percent, 27 percent and 70 percent of the property, respectively, as tenants in common. Each tenant can sever his relationship with the other tenants by conveying his interest to another party. This third party then becomes a tenant in common with the other co-tenants.

Joint tenants, on the other hand, must have equal ownership interests in the property. So, three owners would each have a one-third interest in the property. If one of the joint tenants dies, his interest immediately ceases to exist and the remaining joint tenants own the entire property. The advantage to joint tenancy is that it avoids having an owner’s interest probated upon his death since his interest passes by operation of law. This is why jointly owned property is considered non-probate property.

Another advantage is if a joint tenant needs to apply for Medicaid in Pennsylvania the State will not put a Medicaid lien on the property if it is a primary residence of both joint tenants. A disadvantage to both joint tenancy and tenancy in common, however, is that creditors can attach the tenant’s property to satisfy a debt. For example, if a co-tenant defaults on his debts, his creditors can sue in a “partition proceeding” to have the property interests divided and the property sold, even over the other owners’ objections.

A third form of tenancy is tenancy by the entirety which avoids this problem, but it is available only to married or, where applicable, civilly united couples. Tenancy by the entirety is based on the societal value of protecting the family. One tenant cannot convey his interest on his own, unlike with the other tenancies. Upon the death of one spouse, his interest automatically passes to the other spouse by operation of law, as with joint tenancy, and the creditors of one spouse cannot attach the property or force its sale to recover debts unless both spouses consent.

Creditors may place a lien on property held in tenancy by the entirety, but if the debtor spouse dies before the other spouse, the other spouse will take ownership of the property free and clear of the debt. This is why both husband and wife are required to sign the mortgage on their property for the mortgage to be valid.

If you have any questions about tenancy or need a deed updated or prepared feel free to contact Gregory J. Spadea at 610-521-0604 from Spadea & Associates, LLC in Ridley Park Pennsylvania.

Filed Under: Estate Planning, Real Estate Tagged With: , ,

Proper Uses of Special Needs Trust Funds

October 14, 2013 by

Once you have a third party Special Needs Trust set up for a disabled beneficiary, you should know what the proper uses of Special Needs Trust funds are. The general rule is that the funds cannot be used to pay for any expense covered by Medicaid. Here is a general list of how the Special Needs Trust funds should be spent:

1. Purchase of home.
2. Architectural modification to residence owned by either the trust or the disabled beneficiary to permit greater accessibility.
3. Home improvements, repairs and maintenance including tools to perform home improvements, repairs and maintenance.
4. Furniture and home furnishings.
5. Home alarm or monitoring system.
6. Repair services for appliances, bicycle, household items and fitness equipment.
7. Cable television service like Comcast or Direct TV, telephone and internet.
8. Computer, laptop or tablet or e-readers including Apple Ipad, or Kindle with software, programs, e-books and applications.
9. Telephone service and equipment, including cell phone, pager, etc.
10. Appliances such as TV, DVD, microwave, stove, refrigerator, clothes washer and dryer.
11. Assistive technology not covered by Medicaid.
12. Snow removal, landscaping and lawn service.
13. House cleaning and laundry services.
14. Purchase of automobile or van to transport the disabled beneficiary including maintenance, insurance, repairs, fuel etc.
15. Fitness equipment.
16. Non-food grocery items such as laundry soap, bleach, fabric softener, deodorant, dish soap, hand and body soap, personal hygiene products, paper towels, napkins, tissues, toilet paper, any household cleaning products.
17. Over-the-counter medications including vitamins, herbs and protein shakes.
18. Holiday decorations, parties, dinner dances, holiday cards, reasonable modest gifts from beneficiary for customary special occasions to close family and friends.
19. Stationery, stamps, Christmas cards, etc.
20. Case management of the programs for the disabled beneficiary including attendant care.
21. Elective surgery.
22. Dental work not covered by Medicaid, including anesthesia.
23. Personal assistance services not covered by Medicaid.
24. Physical or occupational or speech therapy or any medical specialist not covered by Medicaid.
25. Musical instruments including lessons and music.
26. Prepaid funeral expense.
27. Psychiatric and psychological services including evaluations and private counseling if not covered by Medicaid.
28. Accounting services to prepare annual trust income tax returns.
29. Legal fees and Court costs to appoint a guardian.
30. Haircuts, salon services and message therapy.
31. Pet and pet’s supplies, veterinary services.
32. Educational courses or classes including supplies and tutoring.
33. Clubs and club dues including record clubs, book clubs, health clubs, service clubs, zoo, advocacy groups, museums etc.
34. Tickets for concerts and conferences
35. Travel costs like airline tickets to family and friends.

If you have any questions about setting up or operating a special needs trust please contact Gregory J. Spadea at 610-521-0604 of Spadea & Associates, LLC in Ridley Park, Pennsylvania.

Filed Under: Estate Planning Tagged With: , ,

What Can I Do With My Life Insurance Policy?

August 20, 2013 by

Do you have a life insurance policy and no longer want it or can’t afford the premiums? You can do more than just stop paying the premiums or cashing it in with the insurance company.

Many people have sold their policies in a life settlement sale for cash. The process is not easy, but it can be in your best interests to explore it.

How does it work?

First, we will review your policy and appraise it to determine the market value. Next, we will find a buyer. Once we have a buyer and complete the sale, you will receive a cash settlement and the buyer will pay the future premiums and collect the benefit when you die.

Finding a buyer on your own can be very difficult, which is where we come in. We have contacts in the market and are able to find the best deal for you. You will receive a percentage of your policy’s value in cash. For a free consultation contact David Edelman at 610-521-0604.

What you should know before selling your policy

  • Your life insurance policy may not have much value on the market.
  • You won’t get the full face value. Generally, sellers receive about 7 percent to 20 percent of the value of their policy.
  • Brokers charge a commission.
  • Buyers don’t want every policy.
  • Your settlement could be subject to income tax.
  • Your eligibility for government assistance programs like Medicaid may be affected.

If you would like to discuss your options or are interested in finding out more, please call David W. Edelman at 610-521-0604 at Spadea & Associates, LLC in Ridley Park, Pennsylvania.

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When Are Fiduciary Bonds Required in Probate?

August 5, 2013 by

Fiduciary bonds or administrator’s bonds, act like an insurance policy covering the administrator’s performance of his or her duties. The purpose is to ensure that the administrator does not steal the beneficiary’s assets, which is what the bond insures against.

Fiduciary bonds are not required if the decedent left a valid Last Will and Testament that specifically waives the requirement for a bond. This alone is a compelling reason why everyone should have a Will, even if their intended beneficiaries are the same people who would inherit under the intestacy laws.

Fiduciary bonds are required if the decedent’s Last Will and Testament did not waive bond, or if the decedent died intestate (without a will). It may take one to three weeks for fiduciary bond to be issued and the estate cannot be probated until the bond is issued.

The amount of the bond depends on the size of your estate. Pennsylvania requires the bond to be double the value of the personal assets. Real estate is not typically included in the bonded amount. Because real estate is inherently fixed, there’s no concern that the personal representative will steal it. The amount of the fiduciary bond can fluctuate over time. If more assets are discovered, the amount could increase. If a distribution is made from the estate, the amount could decrease. You should monitor the amount of the bond to be sure that it accurately reflects the value of the estate.

Fiduciary bonds are usually renewed on an annual basis. The longer the estate remains open, the more money is paid out in bond premiums by the estate. This creates an incentive for the personal representative to keep things moving and complete the process as quickly as possible. A pro rata refund of the bond premium may be available if the estate is closed before the one year anniversary of the bond issue date.

If you have any questions about surety bonds or probating an estate please call Gregory J. Spadea at 610-521-0604. Spadea & Associates, LLC located in Ridley Park, Pennsylvania provides estate and tax planning services and probates estates.

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What Type of Expenses Are Deductible on The REV 1500 Pennsylvania Inheritance Tax Return?

May 13, 2013 by

You should keep receipts for the following expenses which are deductible on the PA Inheritance Tax Return and the PA final PA-41 fiduciary return:

  1. Funeral costs including luncheon and head stone;
  2. Attorney, Accounting and Appraisal fees and Real Estate Commissions;
  3. Final medical bills;
  4. Final utility bills including cable, internet, telephone, gas and electric;
  5. Costs incurred to sell assets of the estate including real estate taxes and property insurance;
  6. Probate Fees paid to the Register of wills;
  7. Probate publication fees;
  8. Executor Travel Expenses;
  9. Cost of a Posting a Bond;
  10. Debts of the Decedent;
  11. Federal and Pa Income Tax paid with final income tax returns.

Contact Spadea & Associates, LLC at 610-521-0604 if you need help administering an estate or find yourself being appointed as an Executor.

Filed Under: Estate Planning, Tax Law Tagged With: , , , , , , , , , , , , , ,

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