Accounting for an Estate

An accounting is one of the final steps in administering an estate. It is the final reconciliation of all assets in the estate, all expenses of the estate, and any interim distributions. A formal accounting is filed with the court. An informal accounting may be done as well and is presented to the beneficiaries as a summary of the administration of the estate. Pennsylvania and New Jersey accept the national standard form for filing of accounting. The accounting should list all the items that were received into the estate. This may be separated into categories such as real estate, cash accounts, personal property, bonds, mutual funds, etc.

The accounting will indicate if there have been any gains, losses or other disposition of property received into the estate since the estate was opened through the time of the accounting. Any distributions of the estate would be listed such as personal debts of the decedent paid from the estate, funeral expenses, administration expenses and legal fees, where applicable. Finally, the accounting will state the balance of the estate after disbursements. This is the amount available for distribution to the beneficiaries presuming the accounting is accepted. It is important for the executor or administrator to keep detailed records while handling the estate to make sure the final accounting can be accurately prepared.

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Inventory for an Estate

An inventory of probate assets will need to be filed with the court in the process of probating the will. The first step for the executor or administrator is to gather information on what assets exist. For real estate, ownership should be confirmed first via review of deed or a title search. If the home is not promptly sold, it should be appraised to obtain an accurate value. Be sure to inventory the contents of the home as well. This is particularly important if the will provides for specific bequests of personal property such as jewelry, collections or automobiles. For bank accounts and securities, statements should be obtained from the financial institution or broker.

For retirement-type accounts, a good place to start is with the prior employer if documentation cannot be found otherwise. Same rule applies for life insurance policies as they may have been offered as a benefit of employment as well. You will need documentation to support the date of death values for all probate assets. The inventory should be filed within nine (9) months of the death of the decedent. An inventory provides useful in preparing the inheritance tax return which is also due within nine (9) months. Finally, the inventory comes in handy in closing out the estate and preparing an accounting if necessary.

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Putative Father Registry

A putative father is a man whose legal relationship to a child has not yet been established. This may occur in a situation where the Mother of a child is not married and she alleges someone as the father or the man believes he is the father. Pennsylvania maintains a registry of putative fathers for the purpose of giving a man in such a position notice prior to any termination proceedings. Unmarried parties can agree to execute an acknowledgement of paternity to confirm the legal relationship. This acknowledgment is then submitted to the Department of Vital Records to update the birth records. If the parties are not agreeable to execute the acknowledgement, the alternative course of action is to file a petition for genetic testing.

Both parents will be ordered to participate in genetic testing. Failure to appear by the father can result in a court order declaring him as the father by default. Failure to appear by the mother can result in the court dismissing an action for support. Tests results alone are not sufficient to establish paternity. Instead, the parties must stipulate in writing that the test results prove paternity or the court must make an order on paternity after reviewing the test results. Once there is an order on paternity, at that point Vital Records can be contacted regarding updating their records. Additionally, any actions for support or custody of the child can proceed.

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Pension Valuations

Pensions are often one of the assets up for division in a divorce. The marital portion of a pension plan may be divided amongst the parties. The marital portion of a plan would be the portion that accrued from the date of marriage through the date of separation. In some cases, the entire pension will be marital depending on the timing of the marriage alongside the start date of the pension plan. The marital portion will also include investment experience on the marital portion that accrues post-separation. It will not include contributions by the employee made post-separation. Parties can divide the marital portion of the plan by way of percentage or fixed dollar amount.

It is useful to get a pension valuation completed to identify the lump sum marital value of a pension. This can be particularly useful if the intent of the parties is to offset the value of the pension with other assets. For example, if Husband has a pension worth $200,000 and Wife wants to keep the house with equity of $200,000, the parties may agree Husband keeps the entire pension and Wife keeps the house as an equitable distribution. To arrive at the lump sum value of the marital portion of a pension, a coverture fraction calculation needs to be completed to account for the total years of marriage in the context of the total years of contribution to the plan applied to the total benefit available. The valuation also accounts for interest and mortality factors to arrive at the present value. An expert can be retained to complete this valuation.

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Appraisals

An appraisal may be needed to ascertain an accurate value of an asset in a divorce or estate matter. Parties may elect to use one appraiser or have competing appraisers. When choosing an appraiser, it is important to make sure the appraiser is licensed or certified. A licensed appraiser has met the minimum requirements for practice. A certified appraiser must complete additional classroom hours and practice in the field. A list of all licensed and certified appraisers is available on the appraisal subcommittee website.

An ideal appraiser should have prior experience with the exact type of appraisal sought. This would include experience in the geographic market, the type of property, and intended use of the property. You should discuss with the appraiser if any information you supply to them is confidential and should not be included in their report. You should also make it clear who the appraiser is permitted to discuss the appraisal with and/or share the report with. Finally, you should be clear about the valuation date for the appraisal. This may be the date of purchase, date of separation, date of death, or current value. Per the Uniform Standards of Professional Appraisal Practice, appraisers are not permitted to revise an appraisal to account for a different valuation date after completion. Instead, the standards require a completely new appraisal which is not cost-efficient.

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Annuities

An annuity is an investment of a resource in order to receive a fixed payment. Once the investment is annuitized, the original investment cannot be returned. At that point, the characterization of the investment is changed from an asset to income. An annuity is considered marital property and subject to division in the event of divorce. Parties should be careful to review the terms of the annuity contract in determining the best way to split this asset. The goal should be to minimize any tax implications or penalties in dividing the asset. The best option may be off-setting the value of the annuity with another asset in the divorce such as a marital residence.

An annuity may be desirable in terms of long term care planning. Specifically, if a party is looking to qualify for Medicaid and they are over the limit for resources, they may consider changing a resource to an annuity and thereby having it count as income instead. Parties should be careful since there are also income limits for qualifying for Medicaid. Other requirements include naming Medicaid as a second beneficiary for the annuity and electing a period certain annuity as opposed to a life annuity.

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Filing for Support

The first step in seeking support is to file a complaint with the Domestic Relations office. You can go to the office located in your county for assistance in filing. Through the child support program website you are now able to start a request for support online. Once a complaint is submitted, an initial support conference is scheduled for approximately four weeks later. Any support will be retroactive to the filing date so parties requesting support are not prejudiced during this time frame.

Both parties are directed to bring proof of income to their initial conference. This includes recent pay stubs and last filed tax return and W-2. Proof of certain expenses is requested as well. Relevant expenses may include health insurance premiums, mortgage payments, child care costs, and private school tuition. Parties who are unable to appear in person may request to appear by phone provided all the requested income and expense information is supplied in advance of the conference. The conference officer will use the information provided to do a calculation pursuant to the Pennsylvania guidelines. Parties can accept the calculation and enter a final order at the conference. Alternatively, parties can request a hearing if there are unresolved issues following the conference.

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Inheritance Taxes

Pennsylvania does apply a tax on assets passed through probate or intestacy. The amount of tax depends on the value of the estate as well as the relationship of the beneficiaries to 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. Assets passing outside of the will or the rules of intestacy are not subject to the inheritance tax. Popular examples of assets passing 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.

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National Domestic Violence Awareness Month

October is National Domestic Violence Awareness Month. You can visit www.nnedv.org for details on the daily initiatives. The goal is to provide information on what constitutes domestic violence and how to address it once recognized. Thursday, October 19th, is purple Thursday and people are encouraged to wear purple to raise awareness. Pennsylvania has several laws in place to protect victims of domestic violence.

The Protection from Abuse (PFA) Act provides a civil remedy in the form of a stay away order. The PFA Act can only be utilized if there is a certain relationship between the victim and the offender; specifically, family or household members, sexual or intimate partners, or persons who share biological parenthood. Abuse under the PFA Act includes causing or attempting to cause bodily injury, rape, involuntary deviate sexual intercourse, sexual assault, placing another in fear of imminent serious bodily injury, infliction of false imprisonment, physically or sexually abusing minor children, and stalking in the sense of engaging in a course of conduct which place a person in reasonable fear of bodily injury. Three years is the maximum length of a PFA Order. Violations of a PFA Order can carry criminal violations.

Pennsylvania’s Protection from Sexual Violence and/or Intimidation Act (PSVI) is another civil remedy that allows victims to obtain a civil no-contact order for up to three (3) years. Adults and minors can petition for an Order on the basis of sexual violence. Only minors may obtain an Order on the basis of intimidation provided the offender is over 18 years old. There is no filing fee to file. A temporary Order can be granted following an ex parte hearing. A final hearing must be held within ten (10) days of when the Petition is filed. The victim must establish sexual violence and/or intimidation by a preponderance of the evidence. The PSVI Act does not restrict protection based on relationship of the parties involved. Sexual violence for purposes of the PSVI Act includes but is not limited to rape, involuntary deviate sexual intercourse, sexual assault, indecent exposure, and unlawful dissemination of an intimate image. Violation of a PSVI Order can also carry criminal consequences.

Click here to read more about domestic violence.

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Dividing the Marital Residence

The marital home is often one of the bigger assets to be divided in the context of a divorce. There are two options available regarding division of the marital residence. First, one party can keep the home and buy the other party out for their share of the equity. Equity would be determined by the fair market value of the home minus any mortgages or other liens on the home. The second option is for the home to be sold and the proceeds divided among the party. As a matter of equitable distribution, the disposition of a home would generally not be heard until grounds for the divorce have been established and the matter is scheduled for court. However, the family court has the authority to make determinations regarding a marital home even prior to or an equitable distribution hearing or entry of a divorce decree. The court can grant one of the parties exclusive possession of the home while the divorce is pending under Section 3502 of the Divorce Code. An award for exclusive possession should not be given lightly and the party requesting it has the burden of proving its necessity.

Section 3323 gives the court general equity powers to issue any order necessary to protect the interests of the parties or as justice requires. This can include an order mandating a party to pay the mortgage on time, forcing the home to be sold if neither party can afford it pending divorce, and even decisions on which realtor should be used or what the listing price should be and decisions on dropping the price. If reaching a private agreement on what to do with a marital residence, you should contemplate issues which may arise and set forth contingency plans. For example, you can spell out how all expenses of the home will be covered post-separation. You can dictate a timeline for buy-out of equity if one party is keeping the home. Commonly, a refinance is done to remove the other party’s name from the financial responsibility for the home and to access funds necessary for the buy-out. In the case of sale, you can specify at the outset how a realtor will be chosen, what range is acceptable for the asking price, under what circumstances reductions will be made to the listing price if the home has not sold within a certain time frame. It is also useful to explain how parties will be compensated, if at all, for any pricey expenses/repairs above the costs of regular maintenance to ensure the home will sell. Lastly, you want to spell out how the proceeds will be split.

Click here to read more about dividing property.

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