What assets will pass through the will?

, , , ,

Not every asset owned by a party at the time of death will pass under the direction of the will or through the laws of intestacy. It is important to understand the difference in how assets will pass to ensure proper estate planning. Probate assets, those passing through the will, are those for which there is no pre-existing designation as to who should get the asset. Examples of typical assets that will be subject to probate include individually owned bank accounts, cars, personal property, business interest, real property held as tenants in common, cash, and life insurance with no beneficiary. These types of assets should be distinguished from any account with a beneficiary designation, non-probate assets, as those accounts will pass to the beneficiary.

You should also identify which accounts you hold jointly with other individuals. Generally, joint accounts will usually go to the other party whose name is on the account by operation of law.

Assets that are put into joint names within a year of date of death can still be subject to inheritance tax on the full amount of the account though ultimately a non-probate asset. If assets have been put into joint names over a year from date of death then only 50% of the account would be taxed. Ideally, you should plan for how any applicable inheritance taxes on probate assets will be apportioned.

by

Transfer of Real Property

, , , ,

A deed is the legal document to record an interest in real property. This is distinguishable from a mortgage which directs who is financially responsible for payments on a loan secured by real property. It is possible to be on a deed or a mortgage but not both. To the extent you are transferring ownership of property, a new deed is needed to reflect the change. The deed will specify the grantor(s), the person(s) relinquishing ownership of the real property, as well as the grantee(s), the person(s) who are acquiring ownership of the real property. The deed also includes a very detailed description of the real property at issue. These descriptions are based on land records from surveys of the property or construction plans.

Your county office maintains records for all the deeds within their jurisdiction. A new deed should be recorded with the office to replace prior deed. It is common for the deed itself in to include a brief summary of the recent line of ownership as well as where prior deeds were recorded in terms of book and page number. There is usually a cost assessed to record a new deed set by the county based on the number of pages of the document and number of signatures. There may also be real estate transfer tax due depending on the relationship of the grantor and grantee and total fair market value of the property being transferred.

by

Tax Returns for Decedents

, ,

In Pennsylvania, two tax returns are likely needed following the death of an individual. First, the person’s executor or closest kin should make sure their final income tax return is completed. If the party was married at the time of death and previously filed taxes jointly with their spouse, their spouse can file on their behalf and include their income for the tax year in which they passed. If the party was not married, the executor or administrator should make sure a final individual income tax return is filed.

An inheritance tax return will also be needed to the extent the party left assets and/or debts. The inheritance tax return should be filed within a year of death. There is a discount if filed within nine months of death. There is no inheritance tax for assets passing between spouses. There is a 4.5% tax for assets passing to children or other lineal descendants. There is a 12% tax for assets passing to other relatives. There is a 15% tax for assets passing to non-relatives. It is common for a party’s will to provide that these taxes be paid out of their estate prior to distribution of the net estate. Alternatively, each beneficiary would be liable to pay their share of tax based on the assets they receive from the estate.

by

Authority for Estate Administration

, , ,

The executor or administrator is the party tasked with handling the decedent’s estate. An executor is named in the decedent’s will. An administrator is appointed when the decedent dies without a will and is often the closet kin of the decedent. The executor or administrator will be sworn in as the person responsible for handling the administration of the estate. At that time, the Register of the Wills can provide certification regarding the executor or administrator’s authority to handle the affairs of the decedent.

Letters Testamentary are granted to executors named through a will. Letters of Administration are granted to the appointed administrator where there is no will. In either scenario, the executor or administrator may request short certificates with the seal of the court to confirm their authority to manage the estate. These short certificates are required by financial institutions to handle assets, transfer funds to estate account, close out accounts, etc. There is a cost per short certificate. It is a good idea to get several copies of the short certificate at the time you are sworn in. Additional short certificates can be acquired from the Register of Wills at a later date if necessary.

by

Power of Attorney

, , ,

A power of attorney is a legal document that give another individual authority to handle your financial affairs. A power of attorney can be durable, meaning that it is effective immediately upon signing, or springing, meaning that it does not become effective until the party who executed the power of attorney becomes incapacitated. In the case of a springing power of attorney, you will generally need verification by at least two (2) physicians to establish incapacitation and need for the power of attorney to become effective. A power of attorney can also be general or limited. A general power of attorney will grant your agent(s) the power to do virtually anything you could do yourself. A limited power of attorney would limit your agent(s) to tasks specifically outlined within the document. For example, a limited power of attorney may only grant the agent the authority to sell a vehicle or a home.

You may name more than one agent to act on your behalf under your power of attorney. Agents can be directed to act jointly which means they cannot take any action individually. You may also designate agents that can act individually. Each agent must sign acknowledging their fiduciary responsibility to act in a manner that serves your best interests. A power of attorney is revocable in that you can notify the agents and any other parties in possession of the power of attorney that it is no longer valid. This should be done in writing and delivered to all interested parties.   By April M. Townsend

by

Living Will/Healthcare Directive

,

A living will or health care directive is a legal document concerning your intentions for medical care in the event you are incapacitated and unable to convey your wishes. The agent(s) you name would be responsible to make sure your wishes are carried out. It is a good idea to make sure your regular physicians have a copy of the directive. You should also supply a copy prior to any major medical procedures. Finally, you should have a discussion concerning your intentions with your agents in addition to providing them with a copy. The living will directs the treating physician to withhold or withdraw any life-sustaining treatments that serve only to prolong the process of dying, in the event of a terminal condition or state of permanent unconsciousness, including persistent vegetative state or irreversible coma.

The following forms of treatment can be approved or denied: cardiac resuscitation, mechanical respiration, tube feeding or other artificial/invasive forms of nutrition/hydration, blood or blood products, surgery or invasive diagnostic test, kidney dialysis, antibiotics, or respiratory support. You may also set parameters as to what your agent can do on your behalf. For example, whether they can authorize your admission or discharge from care, allow surgical procedures, complete insurance forms, permit donation of anatomical parts, or sign releases for disclosure of your health records. Consult with an attorney as well as your physician to understand your options with respect to your health care power of attorney.  By April M. Townsend

by

Joint Property

, , ,

It is necessary to disclose joint property owned in part by the decedent at the time of his death. Often, joint accounts will provide for the surviving account owner to retain the account, however, these accounts must still be disclosed for purposes of assessing any applicable inheritance tax. Pennsylvania assesses an inheritance tax of 4.5% for lineal descendants, 12% for other relatives, and 15% for other third parties. There is no tax for assets passing to a spouse. An inheritance tax return should be filed with the Pennsylvania Department of Revenue within nine (9) months from the decedent’s death.

Schedule F of the inheritance tax return is for jointly-owned property with rights of survivorship. The list should include a complete description of the asset, date asset was placed into joint ownership, value at date of death and value of decedent’s taxable interest. The identity of the joint tenant(s) is also required along with address and relationship to decedent. Property held as tenants in common should not be included on Schedule F. Instead, those assets should be reported on the applicable schedule with the value of decedent’s interest only.  By April M. Townsend

 

by

Inventory of Estate

, , , ,

An inventory must be filed with the court in the course of administering an estate. This task would be the responsibility of the executor or administrator of the estate. The inventory should identify all probate assets of the decedent at the time of death. This may require some investigation by the executor/administrator. Ideally, the decedent would keep a list of all assets and debts along with their will. They make go a step further and include user name and passwords for their accounts along with this list since a majority of account maintenance and monitoring now happens electronically. If there is not a list provided, a good starting point is to monitor the decedent’s mail for evidence of statements for accounts.

The inventory filed with the court should include the value of the assets listed as of the decedent’s death. You can contact the respective institutions to request a date of death balance if not otherwise ascertainable by the statements available. The inventory is to be filed with the court within nine (9) months from the date of death unless an extension is granted. If additional assets are discovered after filing the initial inventory a supplemental inventory should be filed with the court.  By April M. Townsend

 

by

Intestate Succession

, ,

Chapter 21 of Title 20 outlines the order in which surviving relatives would inherit from a decedent. If the decedent was married and there is no surviving issue (child) or parent, the entire estate goes to the surviving spouse. If there is a surviving parent, the first $30,000 of the estate along with half of the balance would go to the surviving spouse. The other half of the balance would go to the parent(s). If there is surviving issue or children born to the decedent and the surviving spouse, the spouse gets the first $30,000 and the balance is split between the spouse and the children. If the surviving children are not born to decedent and surviving spouse, the entire estate is split between spouse and children.

If not married at the time of death, the decedent’s estate would pass in the following order: (1) surviving issue of the decedent; (2) parent(s) of the decedent; (3) brothers, sisters or their issue; (4) grandparents (half to paternal and half to maternal); (5) uncles, aunts and their issue; (6) the Commonwealth. The class to which the estate would pass is relevant for inheritance tax purposes. There is no inheritance tax for an estate passing to a spouse. There is a 4.5% tax for estate passing to lineal descendants (e.g. children or parents). There is a 12% tax for siblings and a 15% tax for all other relatives.

 

by

Family Settlement Agreement

, ,

The family settlement agreement is a document that can be filed at the conclusion of administration of an estate wherein the beneficiaries accept their distributions and release the executor or administrator from any liability for their handling of the estate. Often, an informal accounting will accompany the settlement agreement so all interested parties can review the administration of the estate. The document would also clearly state the distributions of the net assets of the estate. With respect to cash assets, this may be accomplished by specific dollar amount or by percentage.

One of the benefits of finalizing estate administration by agreement is fewer filing fees and legal fees since less paperwork is filed with the court and a court hearing is not required. Executors or administrators should still publish notice of the estate for any potential creditors and wait one (1) year before distribution. It is possible to allow distributions prior to the one year mark from notice of the estate. In that scenario, it is important to include language that beneficiaries will return funds as needed if a valid creditor is subsequently identified and makes a timely claim against the estate.

by