PA Inheritance Tax Return

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Pennsylvania does apply a tax on assets passed through probate or intestacy. The amount of tax depends on the net value of the estate as well as the relationship of the beneficiaries to the decedent. The first step is to add up all the assets of the estate. The next step is to subtract permissible deductions including costs of administration of the estate and debts of the decedent. There is no tax imposed for assets passing to a surviving spouse or to a child under 21 years old. There is a 4.5% tax for assets passing to children over 21, parents or grandparents. There is a 12% tax for assets passing to siblings. There is a 15% tax for all other transfers including to aunts, uncles, nieces, nephews, cousins or persons of no relation. There are some institutions exempt from the inheritance tax including certain government entities and charitable organizations.

Inheritance taxes are to be paid within nine months from the date of death of the decedent to avoid any penalty. A 5% discount on the tax is extended for returns filed within three months from date of death. Penalties and interest can begin to accrue for taxes that are not paid within nine (9) months of the decedent’s death. It is possible to request an extension in certain circumstances. Assets passing outside of the will or the rules of intestacy are generally not subject to the inheritance tax. Examples of assets that pass outside of the will are life insurance policies, retirement plans and other assets with a designated beneficiary. Additionally, assets jointly owned with rights of survivorship will automatically pass to the surviving owner as a matter of law.

 

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What Must I Do as Executor or Administrator of NJ Estate?

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The first step is to appear before the county surrogate to probate the will. The earliest you can initiate probate is after at least ten (10) days have passed since the date of death.  The original will is required along with death certificate. You should also have an idea of the estimated value of the estate and list of all beneficiaries or heirs at law with addresses and ages.

Once you are authorized to handle the estate by the surrogate, you need to send notice to all beneficiaries and heirs at law to put them on notice of where the probate has been initiated and your role as the executor or administrator. You will need to file proof of notice with the surrogate. This notice should be provided within sixty (60) days from your appointment.

Next, you can begin managing the assets and debts of the estate. You should open an estate account to collect all the assets. Where there is real property, you may need to arrange for sale. Debts of the estate can include tax liabilities as well. An individual tax return should be filed for decedent. Explore if an inheritance tax return needs to be filed as well. The will may direct that any inheritance  tax assessed is paid out of the estate prior to distribution to beneficiaries. An inheritance tax return should be filed within eight months of death to avoid penalties and interest.

Distribution of the net estate can begin as soon as practical following reconciliation of all debt and collection of all assets. If beneficiaries agree with proposed distribution, have them sign a refunding bond and release to receive their bequest. The release should then be filed with the court. If there is any dispute about administration of the estate and proposed distributions, you may need to complete an accounting demonstrating all steps taking during administration and all funds in and out.  By April M. Townsend

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Ancillary Probate

Ancillary probate is the probate process that occurs in a different jurisdiction that the primary probate because the decedent owns  real estate that is located outside of their state of residence. Ancillary probate may also be necessary to address tangible property that is registered and titled outside the home state, or livestock, oil, gas or mineral rights that are attached to real estate located outside of the home state. The same individual that was appointed to handle the initial estate administration is the individual who must handle ancillary probate.

To initiate ancillary probate you will need to present a copy of the will and/or proof of probate proceedings from home state, certified copy of the death certificate, copy of the deed for real estate or or proof of other tangible property that is the subject of the ancillary probate. There are often additional fees assessed by the jurisdiction where the ancillary probate is filed.  by April M. Townsend

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Estate planning tips for blended families

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Careful estate planning may help people prevent inheritance disputes between their new spouses and their children from prior marriages upon their passing.

It is fairly common for people in Pennsylvania to remarry after a divorce, and often, one or both spouses may have children from a previous relationship. While these blended families offer people new opportunities to love and live, they can pose some challenging estate planning and inheritance issues. Therefore, having a carefully thought out estate plan that takes into account their new spouses’ needs, as well as those of their children’s, may help people prevent family disputes following their deaths.

Review beneficiary designations

The way people list their beneficiaries on retirement accounts, life insurance policies and other such accounts will affect how these benefits are disbursed upon their deaths. For example, it is common for people to update their beneficiary designations to their new spouses upon getting remarried. However, if they name only their new spouses, then they are able to specify their own new beneficiaries. This means that the original policy holders’ children may be bypassed altogether.

As such, people should make their intentions clear when designating their beneficiaries. They may name who the accounts should pass to after their spouses’ deaths or indicate specific percentages that each of their beneficiaries should receive.

Designate specific property separately

People often have family heirlooms or cherished personal property that they intend to pass on to certain children. Without a carefully designed plan, however, AARP points out that their new spouses may be entitled to claim up to half of the assets in people’s wills. Thus, it may be helpful if people leave a separate list of this property, sometimes referred to as a personal property memorandum. This list should describe each item to be gifted in detail and provide specific instructions as to who should receive each item upon their passing.

Consider inheritance timing

For couples who have not previously been married, inheritance timing is somewhat easy. People often leave their assets to their spouses, and their estates are passed on to their children after their spouses pass away. When it comes to second or subsequent marriages, however, withholding distributions of their children’s inheritances until after the death of their new spouses may create hostility and impatience. Therefore, people may consider establishing trusts or outright transfers that occur at the time of their deaths in order to accommodate the needs of both their surviving spouses and their children.

Working with an attorney

In the ideal situation, people in Pennsylvania could rely on their spouses and their children to work out inheritances to all their benefit after they pass away. However, even in long-term second marriages, new spouses and children from prior marriages may have drastically different ideas of what they are entitled to. As such, it will benefit people who have remarried or who are planning to get remarried to seek legal guidance. An attorney can explain their rights, including establishing wills and trusts, and help them set up a plan that provides for the needs of both their current spouses and their children from prior marriages.

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Top Five Mistakes Executors or Administrators Make

While administrating an estate is a lot of work, the process is usually straightforward. Nonetheless, executors/administrators sometimes made mistakes. The TOP FIVE common mistakes are listed below:

1. Not opening an estate right away

When opening an estate, it is usually best to open an estate shortly after someone passes away. As time passes, it is more likely that assets become forgotten, beneficiaries pass away, statutes of limitations expire, businesses have no clear decision maker, or personal property gets destroyed. Taxes are due within 9 months of passing (more on that below).

In the event that the estate has no will, family members may have issues opening an estate. For example, a family member may become difficult to find as time passes. Another possibility is that as time goes by, other family members may pass away, in which there are more steps in distributing funds or you will need to distribute funds to the estates of the deceased relatives.

2. Not paying inheritance taxes in a timely manner

Inheritance tax is due within 9 months from the date of passing. If not paid by that date, the estate is subject to penalties and interest. Furthermore, a 5% discount is available in the event that the inheritance tax is paid within 3 months from passing. Not paying the inheritance tax could be costly to the estate if not paid.

3. Not giving notice to creditors

Creditors are entitled to collect what is owed to them prior to beneficiaries. While a person is alive, a creditor who is not paid can file suit to collect in court for breach of contact up to four years after the breach. However, once an estate is open and an executor advertises in two newspapers (one in the local legal newspaper and one in a newspaper of general circulation), creditors only have 1 year to make a claim. By delaying the advertising (or not giving any notice), the executor is only delaying the distribution.

4. Distributing assets to beneficiaries prior to paying creditors

As stated above, creditors are entitled to collect what is owed to them prior to distribution to beneficiaries. In the event that executors distribute funds to beneficiaries without leaving enough to pay creditors, the executor may be personally liable to pay the creditors. In most cases, they will need to be reimbursed by the other beneficiaries, but that is not always possible or easy (for example, a family member refuses to return money, the family member already spent the funds and can no longer pay the estate back, or a family member cannot be located or passed away since distribution). While I suggest that all beneficiaries sign an acknowledgement and agreement to refund the money in the event of overpayment, enforcement is sometime a challenge. For this reason, it is best to make sure all creditors are paid prior to distribution.

5. Not following the terms of the will

An executor is required to distribute the funds pursuant to the will. In the event that the will is not followed and a beneficiary gets less than what he or she is entitled, the executor may be personally liable. Prior to closing out the estate, family members should sign a settlement agreement wherein they accept the amounts received and approve of the estate expenses. If any family members disagree, then the estate will need to be resolved through an audit and adjudication and have the matter approved by the Judge. Again, if the executor does not follow the terms of the will, then the matter will not be approved.

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Top six mistakes made when preparing will

While proper estate planning is essential, mistakes do happen. Below are the TOP FIVE some common mistakes:

1. Conflicts between legal documents
Many clients do not realize that some property does not transfer through the estate. For example, a deed supersedes the will. In other words, if the deed is titled as joint tenants with right of survivorship, then it bypasses the will upon your death. In other words, the will can leave it to one person, but the deed will override the will.

Similarly, accounts in joint names or with beneficiaries go to the survivors/beneficiaries, despite what the will says.

2. Not leaving enough in the residue (i.e. specific bequests are too high)
Some people want to give specific gifts or amounts of money to a designated person. The remainder (or residue) is then given to the other beneficiaries. The intent is that people are not forgotten, with the bulk of the estate going to the closest family members. Unfortunately, people do not realize that the residue is sometimes smaller than anticipated. There are several reasons for this – estate costs (probate fees, inheritance tax, attorney fees, creditors) are higher than anticipated, real estate sells for less, the stock market and retirements accounts are lower than when the will was prepared, or you spend more than you expected to during your lifetime.

For this reason, you want to revise your will every few years to make sure that the distribution is as planned.

3. Not checking with executors/trustees
When drafting a will, you will need to name an executor, and potentially a trustee and/or guardian. Because there is a lot of work that needs to be done, many people are reluctant to put in the time or energy. Furthermore, some people are reluctant to become the executor because they believe that it will cause issues with other family members. It is best to confirm with the potential executor that they are agreeable to take on this endeavor.

4. Not reviewing the will after life changing events
It is important to review the will every few years. Life changing events happen all of the time, so whenever you or a family member goes through divorce, gets married, has children, loses a loved one, or has a falling out with a family member, you need to make sure that the will reflects the changes. Additionally, you want to make sure that the named executor remains up to the task.

5. Moving to another state
There are different requirements for all states. If you are moving to another state, you should consult an attorney in the new state to make sure that your most recent will is still valid.

6. Ambiguity in terms
There are times when a will is ambiguous. This can happen when there are two family members with the same name (senior vs. junior or when someone with the same first name marries into the family and takes the other’s last name). It can also occur when you give a specific item (i.e. my favorite ring to my daughter), and no one knows for certain what item you are referring. Furthermore, if you are giving percentages of your estate to family members, you need to make sure that the estate adds up to 100%.

As you are unable to clarify this upon your passing, it is imperative that all terms of the will are clear when it is prepared. If there are any ambiguities, it is likely up to the court to determine your intent.

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Do You have a Will in Place?

When you pass away, it is important to have a will in place so that your assets are distributed per your wishes. However, if you pass away without a valid will in place, your estate will be distributed pursuant to Pennsylvania intestacy rules.

If you are married at the time of your passing, the following rules apply:

  • If you do not have surviving parents or issue (i.e. children), your spouse will be entitled to your entire estate.
  • If you leave issue (all of whom are also issue of your spouse), then your spouse will get the first $30,000 and half of the remaining estate, and your children will split the other half of the estate.
  • If one or more of your issue are from a parent other than the surviving spouse, then your spouse will receive half and the issue will split to remaining half.Likewise, if you have no issue but your parents are alive, then your spouse will get half of the estate and your parents will get the other half.

If you do not leave a surviving spouse, then your estate is left in the following order:

  • Children
  • Parents
  • Siblings (or their issue)
  • Grandparents
  • Aunts and Uncles (or cousins)
  • Commonwealth of Pennsylvania

It is important to speak with an experienced attorney as the rules are very complex and often confusing.

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Estate planning tips for blended families

,

Careful estate planning may help people prevent inheritance disputes between their new spouses and their children from prior marriages upon their passing.

It is fairly common for people in Pennsylvania to remarry after a divorce, and often, one or both spouses may have children from a previous relationship. While these blended families offer people new opportunities to love and live, they can pose some challenging estate planning and inheritance issues. Therefore, having a carefully thought out estate plan that takes into account their new spouses’ needs, as well as those of their children’s, may help people prevent family disputes following their deaths.

Review beneficiary designations

The way people list their beneficiaries on retirement accounts, life insurance policies and other such accounts will affect how these benefits are disbursed upon their deaths. For example, it is common for people to update their beneficiary designations to their new spouses upon getting remarried. However, if they name only their new spouses, then they are able to specify their own new beneficiaries. This means that the original policy holders’ children may be bypassed altogether.

As such, people should make their intentions clear when designating their beneficiaries. They may name who the accounts should pass to after their spouses’ deaths or indicate specific percentages that each of their beneficiaries should receive.

Designate specific property separately

People often have family heirlooms or cherished personal property that they intend to pass on to certain children. Without a carefully designed plan, however, AARP points out that their new spouses may be entitled to claim up to half of the assets in people’s wills. Thus, it may be helpful if people leave a separate list of this property, sometimes referred to as a personal property memorandum. This list should describe each item to be gifted in detail and provide specific instructions as to who should receive each item upon their passing.

Consider inheritance timing

For couples who have not previously been married, inheritance timing is somewhat easy. People often leave their assets to their spouses, and their estates are passed on to their children after their spouses pass away. When it comes to second or subsequent marriages, however, withholding distributions of their children’s inheritances until after the death of their new spouses may create hostility and impatience. Therefore, people may consider establishing trusts or outright transfers that occur at the time of their deaths in order to accommodate the needs of both their surviving spouses and their children.

Working with an attorney

In the ideal situation, people in Pennsylvania could rely on their spouses and their children to work out inheritances to all their benefit after they pass away. However, even in long-term second marriages, new spouses and children from prior marriages may have drastically different ideas of what they are entitled to. As such, it will benefit people who have remarried or who are planning to get remarried to seek legal guidance. An attorney can explain their rights, including establishing wills and trusts, and help them set up a plan that provides for the needs of both their current spouses and their children from prior marriages.

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Frequently asked questions about pet trusts

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Pet owners who anticipate their pets outliving them should know the essential facts about pet trusts to be able to decide what is right for their situations.

Estate planning in Pennsylvania involves a lot of different considerations, including drafting a will, selecting an estate administrator, planning for the probate process and setting up any trusts. One kind of trust that people often overlook is a pet trust. A pet trust is a great way for pet owners to ensure that their animal companions will receive the optimal level of care necessary for them to have happy lives after their owners’ deaths. Knowing the answers to some common questions about pet trusts can help pet owners to decide if a pet trust is right for their estate plans.

What exactly is a pet trust?

A pet trust is a legal arrangement to ensure that a pet will receive the proper care and maintenance it needs after its owner passes away. While typically used for animals with longer lifespans such as parrots and horses, a pet trust can be set up for any animal and will last for the duration of the animal’s lifetime. When it is set up, a designated caregiver is set up as a “trustee” who will be given a set amount of funds that is determined by the grantor of the trust, based on what the pet’s needs are anticipated to be. This may be done in whatever manner the grantor specifies in the trust, but it is usually done as a disbursing of funds at regular intervals.

How is a pet trust different from putting a pet in a will?

There are limitations to what can be put in a will, and when someone inherits money from a will, he or she is not necessarily going to be monitored as far as what he or she spends the money on. A pet trust instills in the trustee a legal obligation to utilize the designated funds exclusively for the care of the specified pet. A pet owner can also specify the expected standard of care for the pet to receive for the remainder of its life. Another benefit to a pet trust is the option to designate a remainder beneficiary. In the event that the pet passes on before all of the funds of the pet trust are exhausted, this beneficiary will receive anything that is left over in the trust.

The decision as to whether or not to go with a pet trust can be a complex matter. There are many details to be worked out, especially if there are multiple pets involved. It may be prudent for someone who is considering this option to discuss the matter with an attorney in the local area who practices estate planning law.

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