Administering an estate is the process of transferring, in an orderly and documented fashion, the assets of a deceased individual to his/her beneficiaries in accordance with the laws of our state. It normally is necessary when an individual dies with assets in their name alone that are not designated. So often when the first spouse passes there is no administration necessary. Essentially the whole system exists for one simple reason. Why? Death is a taxable event in Pennsylvania.
When is it necessary to administer an estate?
If an individual passes away leaving assets in their name alone it is often necessary to open an estate so that the executor can gain access to those assets. Those assets must then be used to pay the bills of the decedent, in a specific order proscribed by law. Once all debts are paid the remaining assets go to the decedent’s beneficiaries, subject to the payment of Pennsylvania inheritance tax. If the ‘probate’ estate is less than $50K (a small estate) there is a streamlined process to administer the same. The important thing to remember is that if you inherit something from a PA resident that passed away (other than your spouse) you probably owe inheritance tax.
When is it not necessary to administer an estate?
For many married couples no estate administration is necessary upon the death of the first spouse because: (1) There is no inheritance tax for assets going to the surviving spouse; (2) all their assets are held jointly and by operation of law those assets automatically pass to the surviving spouse; and/or (3) the spouse was the named beneficiary of any designated assets.
It can be necessary to probate the Will of a husband or wife that has passed away if they held assets in their name alone which cannot be accessed otherwise. Thankfully if the Will leaves everything to the spouse, no inheritance tax is due, even though some administration was required.
IWhy does this system exist?
Our probate or estate administration system has been built up for two primary purposes. The first is to create an orderly public process wherein all that an individual has accumulated over a lifetime is orderly transferred to the beneficiaries named in their Will or Trust. If an individual dies without a Will or Trust their estate goes to their Intestate Heirs, which in PA is family in an order predetermined by the state. It comes as great relief to many to discover that our state is not the beneficiary of anyone’s estate, unless someone dies leaving no family whatsoever.
The second is that death is a taxable event. It is necessary to accurately assess the net value of the assets of a decedent’s estate because when a state resident (domiciled here) dies, those funds, namely someone’s inheritance, are taxable. It is just one of many sources of revenue our state collects to pay its bills. The rate of tax paid is based on the beneficiaries relationship to the individual that died a resident of Pennsylvania. The rates are: (1) 0% for spouses and charities; (2) 4.5% for “lineal descendants” namely grandparents, parents, children and grandchildren; (3) 12% for brothers & sisters; and (4) 15% for everyone else. There are some inheritance tax exceptions for small businesses and family farms.
How much will your office charge to help administer my loved one’s estate?
It depends on the size and complexity of the estate, whether the beneficiaries are cooperating or fighting, if litigation is involved or if other unexpected issues arise. Mostly we charge a flat rate depending on if the estate has real estate or not and a small percentage of any assets in excess of $100,000. We will discuss what needs to be done to administer your loved ones estate and agree upon the fee for that work. In any event our fee is clear and reasonable. And if you choose not to hire us you do not owe us a penny. If you would like our help through this process call or schedule an appointment so we can answer your questions.