Checklist of What Must be Done After Your Loved One Dies

Clipboard with checklist

  1. Locate original will, trust, insurance policies and deeds.
  2. Contact both the funeral home and church to make arrangements and publish obituary notice.
  3. Obtain 10 Certified Death Certificates from the Undertaker.
  4. Contact Social Security, the Veterans Administration, and any other payers of pensions to stop direct deposits.
  5. Contact life insurance company to determine death benefits.
  6. Contact utility companies, cable TV, cell phone, pest control and lawn care to cancel service or change billing status.
  7. Contact homeowners, auto and health insurance to cancel coverage or change policy.
  8. Remove your loved one’s name from the car registration if held jointly.
  9. Contact all three credit reporting agencies (Transunion, Experian and Equifax) and cancel all the credit cards in your loved one’s name.
  10. Cancel or change all memberships and magazine or newspaper subscriptions.
  11. Contact an attorney to see if probating the estate is necessary and bring a list of all the assets.
  12. Have the mail forwarded to the executor if needed.
  13. If probating the estate is not necessary, transfer title on all the jointly owned assets such as bank and brokerage accounts to the surviving owner and remove your loved one’s name and social security number. You may leave one joint account open for 8 months after the date of death in case you need to deposit a check in their name.
  14. Update your life insurance policy and retirement accounts to remove your loved one as beneficiary.
  15. If your spouse and yourself own any real property jointly you do not need to change the deeds but you will need their death certificate when the property is sold.

Feel free to contact Gregory J. Spadea, Esquire of Spadea & Associates, LLC online or at 610-521-0604 to help you probate your loved one’s estate.

Five Reasons Why Joint Accounts May Be a Poor Estate Plan

Writing A Check

Many people view joint ownership of bank or brokerage accounts as an easy and inexpensive way to avoid probate since joint property passes automatically to the joint owner at death. Joint ownership can also be an easy way to plan for incapacity since the joint owner of accounts can pay bills and manage investments if the primary owner gets sick or becomes incapacitated. Although joint accounts make sense for some assets like a primary residence for married couples, there are five drawbacks as well such as:

  1. Creditor Risk. Joint owners of accounts have complete access and the ability to use the funds for their own purposes. In addition, the funds are available to the creditors of all joint owners. If a senior applies for Medicaid or other public benefits half the joint account could be considered as belonging to them as well as the other joint owners.
  2. Inequity Regarding Other Beneficiaries. If a parent has one child on certain accounts, but not all children, at death that one child may end up inheriting more than the others. While the parent may expect that all of the children will share equally, and often they do in such circumstances, there’s no guarantee.
  3. Unexpected Death of Joint Owner. A system based on joint accounts can fail if a child passes away before the parent. Then it may be necessary to set up a trust to manage the funds or they may ultimately pass to the surviving siblings with nothing or only a small portion going to the deceased child’s family. For example, a mother put her house in joint ownership with her son to avoid probate and Medicaid’s estate recovery claim. When the son died unexpectedly, her daughter-in-law was left high and dry despite having devoted the prior four years to caring for her husband’s mother.
  4. Loss of Control. If a parent adds a child to an account making it a joint account, that parent may lose control over the account and decisions may be made without his consent. The problem with that is the child can withdraw all of the money, regardless of their contribution to the account.
  5. Income Tax Considerations. The beneficiaries do not get the full stepped up basis for income tax purposes when they inherit jointly owned real estate. Therefore if they later
    sell the house they will have to pay federal and state income taxes on the capital gain which is 14% to 19% higher than Pennsylvania inheritance taxes.

Joint accounts do work well in two situations. First, if you have only one child and want everything to go to him or her, joint accounts can be a simple way to provide for succession. It has some of the risks described above, but for most people the risks are outweighed by the convenience of joint accounts. Second, if you put one or more children on your primary checking account to allow them pay the recurring monthly bills and have access to funds in the event of incapacity or death. However, for the rest of your assets, wills, trusts and durable powers of attorney are much better planning tools. They do not put your assets at risk. They provide that the estate will be distributed according to your wishes or in the event of a child’s incapacity or death. In addition they provide for asset management in the event you become incapacitated. If you do not have these documents or have any questions please contact Gregory J. Spadea at 610-521-0604 of Spadea & Associates, LLC in Ridley Park, Pennsylvania.

12 Tips to Help Landords Audit Proof Their Tax Return

Tax return paper

The IRS does not audit too many returns due to inadequate staffing and poor management. However, to truly audit proof your return, I would advise you and all my landlord clients to:

  1. Make the election under Treasury Regulation 1.469-9(g) to aggregate all real estate activities as one activity for passive loss rules if you have more than one rental property. This makes meeting the 750 hour rule for all you rental properties much easier than having to meet it for each individual rental property.
  2. Keep a log on Microsoft Outlook or Google Calendars of the work you do as a Landlord to meet the 750 hour test such as:
    1. working or improving the property;
    2. researching and bidding on properties;
    3. finding and screening tenants;
    4. collecting rent;
    5. performing maintenance.
  3. Never use round numbers on your return because it looks like you are estimating your expenses.
  4. If you pay a contractor or any unincorporated person more than $600 during the year you must issue them a 1099. Therefore you should have them fill in a W-9, before you pay them so you will have their information and can prepare a 1099.
  5. Reconcile the mortgage interest and real estate taxes reported on your 1098 to the amount deducted on your return to ensure the numbers match.
  6. Do not deduct capital improvements under repairs but instead depreciate them or use Internal Revenue Code Section 179 to expense them in the tax year they are placed in service.
  7. Use Quickbooks if you have multiple properties to track rental income and expenses for each property. Deposit all your rental income into a separate bank account.
  8. Never deposit rental income into your personal account and never pay personal expenses from your rental account. Transfer money from your rental account to your personal account and then pay personal expenses from your personal account.
  9. Have a separate credit card that you use only for your rental properties and pay the monthly bill from your rental bank account. At the end of the year the credit card company will give you a summary of all your expenses making your record keeping that much easier.
  10. Make sure all your deposits into your rental bank accounts reconcile to the amount of rental income reported on your tax return.
  11. Keep your leases current and make sure the monthly rent that you deposit is the amount listed on the lease.
  12. Keep security deposits in a separate trust account and only disburse those funds when the tenant moves out.

If you have any questions about audit proofing your return or need help preparing your tax return call Gregory J. Spadea at 610-521-0604 or contact him online, of Spadea & Associates, LLC in Ridley Park, Pennsylvania.

Qualifying for the Family-Owned Business Exemption from Pennsylvania Inheritance Tax

Beginning July 1, 2013, the transfer at death of certain family owned business interests are exempt from the Pennsylvania inheritance tax. Pennsylvania Inheritance Tax is currently 4.5% for linear descendants, 12% for siblings and 15% for everyone else. To qualify for the family-owned business exemption, a family-owned business interest must:

  1. Have been in existence for five years prior to the decedent’s death;
  2. Have less than 50 full time equivalent employees and a net book value of assets totaling less than $5,000,000 at the date of the decedent’s death;
  3. Be engaged in a trade or business, the principal purpose of which is not the management of investments or income producing assets;
  4. Be transferred to one or more qualified transferees – the decedent’s husband or wife, grandfather, grandmother, father, mother, or children, siblings or their children. Children include natural children, adopted children; and stepchildren;
  5. Owned by a qualified transferee for a minimum of seven years after the decedent’s death;
  6. Reported on a timely filed Pennsylvania inheritance tax return and filed within 9 months of the decedents date of death, or within 15 months of the decedent’s date of death if the estate or person required to file the return was granted the six month statutory extension.

The transferee must file an annual certification and notify the Pennsylvania Department of Revenue within thirty days of any transaction or occurrence causing the qualified family-owned business to fail to qualify for the exemption. Failure to comply with the certification or notification requirements results in a total loss of the exemption.

If you feel you qualify for the family-owned business exemption please contact Gregory J. Spadea online or at 610-521-0604 of Spadea & Associates, LLC in Ridley Park, Pennsylvania.

Why I Should Consider Using a Qualified Personal Residence Trust

A house

If you own a residence or a second home and expect to pay federal estate tax and want to pass the property to your children, then you should consider a Qualified Personal Residence Trust (QPRT). You transfer your personal residence or vacation home into the QPRT in exchange for continued rent-free use of the property for a specific number of years (trust term). Assuming you survive the trust term, the residence either passes outright to the beneficiaries of the trust or can remain in trust for their benefit. It is important that you understand that you can continue to use the property once the title has been transferred to the QPRT, but when the term ends you will have to pay rent to the new owners.

A QPRT is valuable because it reduces your taxable estate and freezes the gifted property value so all the appreciation is excluded from your estate. The valuation of this transfer is dependent upon several factors including the trust term, life expectancy of the grantor and the IRS §7520 interest rate for the month of the transfer.

For example if Regina, age 65, on September 15, 2014, transfers her beach home with $1 million market value to a QPRT, she retains the right to use the home for a term of 10 years. Assuming she outlives the 10-year trust term, the house would pass to her three children. The Internal Revenue Code §7520 rate in the month of the gift (September 2014) is 2.2% so the initial taxable gift would be valued at approximately $425,000. So long as Regina’s lifetime taxable gifts have not exceeded $5.34 million which is the 2014 limit, no federal gift tax would be payable, although she would have to file a federal gift tax return. In any event, if Regina survives for the full trust term, the residence will pass to her three children with no additional gift or estate tax inclusion. Assuming the beach home was worth $2.5 million at the end of the 10 year term, Regina would have been able to transfer a $2.5 million beach home to her three children at a transfer tax inclusion of $425,000. Because a QPRT is a future interest gift, the $14,000 annual gift exclusion is not available. However, if Regina does not outlive the ten year trust term then fair market value of the beach home is brought back into her estate while the earlier taxable gift of $425,000 is removed. If the beneficiaries inherit the house before the trust term ends they will get a step up in basis to the fair market value of the property for federal income tax purposes. However, if the beneficiaries sell the house after the trust term they get the grantor’s basis. So if Regina’s basis is $550,000 and the beneficiaries sell the house for $2,500,000, they would have to pay federal income tax on the capital gain of $1,950,000.

After the 10 year trust term Regina could lease the beach home from her three children. Lease payments are another means to benefit heirs without any further gift or estate tax consequences. However, the children would have to pay income tax on the net lease income.

The older you are and the longer the trust term, the smaller the taxable gift. However, you must outlive the trust term. Therefore, your current health and family medical history should be a major focus of QPRT planning. In addition you should ensure the beneficiaries have the same opinion of what to do with the property after the trust term ends. If you have any questions please contact Gregory J. Spadea at 610-521-0604, of Spadea & Associates, LLC in Ridley Park, Pennsylvania.

What Happens to Your Debts When You Die?

When you die, your executor has responsibility to pay all your remaining debts if your estate has enough probate assets to pay them. Probate assets are assets that were in your name alone and pass by your will. Before your executor pays any creditors he or she must first pay the estate administration expenses such as funeral costs, grave marker, probate fees, medical bills, attorney fees and rent for the previous six months prior to your death. After the administrative expenses are paid, the secured creditors are paid and any probate assets remaining will go to pay unsecured creditors.

If the estate is not solvent, and a creditor is paid more than he is entitled to receive, the executor can be held personally responsible to the extent of the overpayment. The executor also may be personally liable if he or she distributes estate property without having given proper notice to those having a claim against the estate.

As a general rule, debt collectors may not try to collect from your heirs. However, there are several exceptions. The first exception is if an heir was a co-signer of a particular debt in which case they would be responsible for that debt or if someone held property jointly with you, they would be responsible for any debts on the joint property. The third exception is if an heir inherits a car or a boat that had an outstanding loan, they would have to pay the loan off or the car or boat would be repossessed by the lender.

Creditors cannot be paid from any assets that pass directly to a beneficiary. Assets that pass directly to a beneficiary are called non-probate assets and include jointly owned bank accounts and any account or life insurance policy with a named beneficiary. Therefore a jointly held bank account would pass directly to the joint owner, and the funds in that account could not be used to pay creditors. Similarly, life insurance policies pass directly to the beneficiaries, so creditors do not have access to those funds. In addition creditors cannot access funds held in an irrevocable trust.

A debt collector may not contact your heirs or relatives to try to collect payment unless they were co-signers of the debt or the debt was a jointly owned debt. Debt collectors are allowed to contact the executor of your estate, or your spouse, or your parents if you were a minor, to discuss the debts but may not discuss the debts with anyone else.

Contact Gregory J. Spadea

If you have any questions or need help probating an estate please contact Gregory J. Spadea at 610-521-0604 of Spadea & Associates, LLC in Ridley Park, Pennsylvania.

Probating a Pennsylvania Estate

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.

  5. 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.
  6. 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.

Is My Property Exempt From Pennsylvania Real Estate Tax?

A house

If you own a property that is regularly used by a charity or falls into one of the 8 categories below you may be exempt from paying real estate tax. To qualify for an exemption your property must be:

  1. Zoned in your Current Municipality for a Real Estate Tax Exemption
  2. An actual place of regular religious worship;
  3. A non-profit burial place;
  4. Property used regularly for public purposes;
  5. Owned Occupied and used by any branch or post of honorably discharged service persons and regularly used for charitable or patriotic purposes;
  6. Actually and regularly used by an institution of purely public or private charity for the purpose of the institution;
  7. A Hospital or institution of learning (schools) or charity including fire and rescue station founded and maintained by public or private charity; or
  8. A Public Library, museum, art gallery or concert music hall provided and maintained by public or private charity.

If your organization falls into any one of the seven categories listed above you can apply for an exemption from real estate tax in the county you are located. If you have any questions call Spadea & Associates, LLC at 610-521-0604.

Understanding Tenancy And Different Ways to Own Property

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.

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