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.

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

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.

Avoiding Intent to Distribute Mandatory Minimum by Pleading Simple Drug Possession in Pennsylvania

Fingerprinted due to a drug arrest

Many individuals believe that to be convicted of a crime involving illegal drugs, weapons, or any other type of contraband a person must actually possess the item on their person, which is simply not the case. In fact actual possession is not a requirement for a conviction. The prosecution can meet its burden of proof of guilt beyond a reasonable doubt, based on the concept of constructive possession. While constructive and actual possessions are very different, a person is subject to the same criminal penalties if they are convicted including mandatory minimum sentences.

Constructive possession requires that the prosecution show that (1) the individual had the power to exercise control over the item and (2) the individual had the intent to do so. While the mere possession of an item in the area where an individual is arrested is not sufficient, the prosecution can use other factors which could lead to a conviction. For example, items found in an individual’s trunk can be problematic for a defense attorney if the car is registered to the individual or the prosecution can show that the individual was the exclusive user of the car.

The same rule would apply to apartments, bedrooms, or living areas. Evidence helpful to the defense would be equal access or control to the areas in question. However, equal access such as multiple roommates having keys to the apartment is a double edged sword as law enforcement can bring charges against every roommate who had access to the illegal drug. While the mere presence of an illegal item is not enough to convict a person, your defense attorney must make that argument and persuade a judge or jury.

It is important to keep in mind, however, that even if a person is found to constructively possess any illegal drugs the weight itself is not enough to trigger a mandatory minimum sentence. The prosecution must still establish intent to distribute the items. Therefore prosecutors try to focus on the item’s packaging and other paraphernalia found near the items or on the individual’s area of immediate control. However, there is a substantial difference between a conviction for drug distribution and simple possession. In Pennsylvania, simple possession is a misdemeanor whereas intent to distribute is a felony with a mandatory minimum sentence.

Since simple drug possession is a misdemeanor, it is possible to qualify for an intervention program like Veterans Court, Drug Court, Home Confinement or the Accelerated Rehabilitative Disposition Program if it is your first offense and other factors.

If you are arrested for possession or on any drug related charge, please contact Gregory J. Spadea online or at 610-521-0604, of Spadea & Associates, LLC in Ridley Park, Pennsylvania.

Gifting as an Estate Planning Tool

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.

When Are Fiduciary Bonds Required in Probate?

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.

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

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.

Why I need an IRA Trust

Jar with label Retirement Plan
The biggest retirement asset for most people other than their primary residence is their retirement plans. One way to ensure that your children do not mishandle your retirement funds after you and your spouse pass away is to set up an IRA trust as your Plan’s contingent beneficiary. This ensures an orderly transfer of wealth from one generation to the next.

The advantages of an IRA trust are as follows:

1. It allows you to control when distributions are made and the circumstances when they should be made. This also allows the beneficiary to stretch out the payments and pay the least amount of income tax over his or her lifetime. This also allows the IRA Assets to continue growing tax free inside the trust over the beneficiary’s lifetime.

2. The IRA trust assets would be protected from creditors so if your beneficiary is sued the assets in the IRA trust would not be subject to any creditor claims. In addition if your beneficiary gets divorced the IRA trust assets would not be part of the marital estate and not subject to claims by the ex-spouse.

3. You can select an investment advisor to ensure the IRA portfolio remains diversified to maximize the investment returns over your beneficiary’s lifetime.

4. If your beneficiary is disabled and receiving government medical benefits the IRA Trust would not disqualify him or her from continuing to receive benefits.

From a procedural perspective you would name the IRA Trust as a beneficiary of your IRA, and upon your passing the IRA trust would distribute the proceeds of your IRA to your beneficiaries over their lifetimes based on the IRS tables for required minimum distributions. If you were married, you may want to have your spouse be the primary beneficiary of your IRA and the IRA trust could be a contingent beneficiary of your IRA.

The reason this is so important is because a nonspouse beneficiary may not receive funds directly from an inherited IRA and roll them over tax free to another inherited IRA within 60 days, as a surviving beneficiary can. Therefore they must use a direct trustee to trustee transfer to avoid income tax on the distribution. Many beneficiaries do not realize once they take the distribution they will be taxed on the entire amount in the year they receive it. This would be disastrous from an income tax perspective because they will lose the power of tax deferred compounding over their lifetime. Therefore setting up the IRA trust as the Beneficiary avoids this problem.

If your IRA assets exceed $250,000 you should consider setting up an IRA trust to ensure your legacy is are protected and your beneficiaries are taken care of after your gone. Contact Gregory J. Spadea at 610-521-0604 if you would like more information.

How to Avoid a Will Contest

Signing Last Will and Testament
With such a large transfer of wealth passing from the current generation than ever before, it is not hard to imagine that litigation can occur at the passing of a loved one if a beneficiary is left out of the will.   A will contest is defined as a formal objection raised against the validity of a will, based on the contention that the will does not reflect the actual intent of the testator (the party who made the will). Will contests generally focus on the assertion that the testator lacked testamentary (mental) capacity, was operating under an insane delusion, or was subject to undue influence, or fraud or duress. A will may be challenged in its entirety, or only in part.

In order to file an objection against a will a person or party must have standing.  Typically, standing to contest the validity of a will is limited to two classes of persons: 1) those who are named on the face of the will (i.e. any beneficiary); 2) those who would inherit from the testator if the will was invalid.

If an heir is unhappy with the amount they received or didn’t receive under a will, he may contest the will.  It may be impossible to prevent heirs from fighting over your will entirely, but there are steps you can take to try to minimize squabbles and ensure your intentions are carried out. The following are some steps that may make a will contest less likely to succeed:

  • Make sure your will is properly executed. The best way to do this is to have an experienced estate planning attorney assist you in drafting and executing the will. Wills need to be signed and witnessed by two independent parties and notarized and should include a self-proving affidavit.
  • Explain your decision. If all the heirs understand the reasoning behind the decisions in your will, they may be less likely to contest the will. It is a good idea to talk to heirs at the time you draft the will and explain why someone is getting left out of the will or getting a reduced share. Although you should discuss it in person, always state the reason in the will. You may also want to include a letter with the will.
  • Use no-contest clause. One of the most effective ways of preventing a challenge to your will is to include a no-contest clause in the will. However this will only work, if you are willing to leave something of value to the potentially disgruntled heir. A no-contest clause states that if an heir challenges the will and loses, then he or she will get nothing. Therefore, in order to be effective you must leave the heir enough so that a challenge is not worth the risk of losing the inheritance.
  • Remove the appearance of undue influence. The most common method of challenging a will is to argue someone exerted undue influence over the deceased family member. For example, if you are planning on leaving everything to your son who is also your primary caregiver, your other children may argue your son took advantage of her position to influence you. To avoid the appearance of undue influence, do not involve any family members who are inheriting under your will in drafting your will. Family members should not be present when you discuss the will with your attorney or when you sign it. To be totally safe, family members shouldn’t even drive you to the attorney.
  • Prove competency. One common way of challenging a will is to argue the Testator was not mentally competent at the time he or she signed the will. Pennsylvania requires that you be over 18 years of age and be of sound mind. One type of mental incapacity is insane delusion which Courts have defined as a “fixed false belief without hypothesis, having no foundation in reality.  You can try to avoid this by making sure the attorney drafting the will tests you for competency.  The attorney may ask you a series of questions to ensure the Testator understands (a) the amount and nature of his or her property, (b) the heirs and loved ones who would ordinarily receive such property by his Will, and (c) how his Will disposes of such property.  The attorney will record your answers to show you were competent when you signed your will.  The attorney may also recommend you be tested by a doctor who will write a report indicating you were competent when you signed your will.
  • Remove the appearance of undue influence. The most common method of challenging a will is to argue someone exerted undue influence over the deceased family member. For example, if you are planning on leaving everything to your son who is also your primary caregiver, your other children may argue your son took advantage of his position to influence you. To avoid the appearance of undue influence, do not involve any family members who are inheriting under your will in drafting your will. Family members should not be present when you discuss the will with your attorney or when you sign it. To be totally safe, family members shouldn’t even drive you to the attorney.
  • Remove the appearance of fraud. A less common method of challenging a will is for an heir to argue that the Testator was fraudulently induced into signing his or her will. Fraud can occur if the Testator signed a will without realizing it was a will. It could also happen if someone gave the Testator misinformation that caused him or her to change the distribution in the will. It is very hard to prove but it happens.
  • Remove the appearance of duress. Duress involves some threat of physical harm or coercion on the testator by the perpetrator which caused the signing of the Will not to be voluntary.  To avoid this the Testator should be by themselves when they meet with their attorney to draft and sign the will with no beneficiaries present.

Please contact Gregory Spadea at 610-521-0604 if you would like your will reviewed to ensure the likelihood of it being contested is reduced.

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