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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.

Wills for Heroes is a program in conjunction with the Pennsylvania Bar Association that provides free wills, living wills, and powers of attorney to first responders and their families. Appointments are required along with proof of military or public service. There is also a limit on the size of the estate to utilize this service. Appointments can be made online at the Pennsylvania Bar Association website. Each appointment slot is one hour. Each participant will have their final, notarized documents to take home with them by the conclusion of their appointment. If a spouse or significant other is also participating, their appointment will be immediately following that of the first responder. The program is made possible through the time of volunteers including attorneys, reviewers and witnesses.

Lehigh County has a “Wills for Heroes” event coming up on Saturday, August 18 2018. The event is being held at the Barrister Club. Their address is 1114 W Walnut Street, Allentown, PA 18102. Appointments begin at 11 a.m. For more information and events at other locations throughout the state, you can visit www.pabar.org/wfh/. Other upcoming dates include September 8, 2018 for York County and September 12, 2018 for Philadelphia. Our firm is also able to assist with estate planning documents at a reasonable cost including trusts, wills, living wills and powers of attorney. Please contact our office if you would like additional information or to set up an appointment.

It is possible for a spouse intentionally left out of the other spouse’s will to still receive a share of the estate in the event of death. Pennsylvania law provides for an “elective share” pursuant to 20 Pa. C.S. 2203(a). This law provides that if a person is still married at the time of their death with no divorce pending, the surviving spouse can elect to receive 1/3 of that person’s estate. There are items that are excluded from the estate in instances where an elective share will be applied. 2203(b) states the following exceptions: (1) any conveyance made with the express consent or joinder of the surviving spouse; (2) the proceeds of insurance, including accidental death benefits, on the life of the decedent; (3) interests under any broad-based nondiscriminatory pension, profit sharing, stock bonus, deferred compensation, disability, death benefit or other such plan established by an employer for benefit of its employees and their beneficiaries; (4) property passing by the decedent’s exercise or non-exercise of any power of appointment given by someone other than the decedent.

To simplify, a surviving spouse cannot receive any portion of something that they already agreed to give away by way of previously consenting to it. As it relates to subsections (2), (3) and (4), accounts that have a beneficiary designation will pass to the named beneficiary. Additionally, the surviving spouse waives the right to seek other items they may have been entitled to if they choose to exercise the elective share. The surviving spouse must reduce to writing their intent to exercise the elective share and timely file with the court. Either spouse may waive their right to exercise the elective share before or during the marriage or even after death of their spouse. This waiver could be included in a pre-nuptial or post-nuptial agreement, for example. It is wise to consult with an attorney to see if choosing the elective share is the best outcome if you are left out of a spouse’s will.

After a family member’s death, the first step should be to determine if they had a last will and testament. If so, you will want to locate the original will and make sure it has been properly signed and witnessed. The named executor will need to go to the Register of Wills with the original will, photo identification, and some method of payment to open the estate. If the named executor does not want to act they can sign a renunciation which would allow someone else to take on the role. The Register of Wills will give the executor a short certificate of letters testamentary. This document authorizes the executor to handle the decedent’s estate. If a loved one has passed away without a will, the Pennsylvania laws on intestacy will govern how their estate is handled. The closest kin can apply to the Register of Wills to be designated as the administrator of the estate. They will also be granted a short certificate as proof of their authority to handle the estate.

The executor or administrator has the responsibility for identifying and managing all the assets and debts as well as identifying beneficiaries and their contact information. Notice should be provided to all possible beneficiaries. Notice should also be provided to all possible debtors by publishing notice in the local law reporter as well as a local newspaper of general circulation. The executor or administrator should notify social security, employer(s), banks, insurance companies, retirement plans, etc. regarding the death of the decedent. Ideally within three months of the date of death, the executor or administrator should pay estimated taxes on the estate to get a discount. Taxes for the estate will depend on the size of the estate. A federal estate identification number should be obtained. The executor or administrator also needs to make sure the final individual tax return for the decedent is prepared and filed in addition to the inheritance tax return.

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.

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.

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.

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.

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.

Medicaid is a need-based health care program. It is a federal program that is administered on a state level. Elderly persons needing long-term care often try to utilize Medicaid to assist with the expenses. Appropriate estate planning can assist in this regard. Since Medicaid is for low-income individuals, there are limits on the amount of income and assets a party can have. An individual should plan ahead to make sure any countable assets and income are structured so as not to affect any future applications for Medicaid. Medicaid can look back five years from the date of an application so it is important to do any relevant estate planning well in advance.

Certain assets are not countable in terms of eligibility for Medicaid. One of the big exemptions is your home. Current federal law allows one residence to be exempt with a cap of $560,000 for the total equity of the home. Even if the home is above that amount of equity, it may still be exempt if a spouse, child under 18 or permanently disabled child is still residing in the home. A party seeking Medicaid cannot have more than $2,000 per month income. There are additional rules as far as assets your spouse can keep under the anti-impoverishment provision. It is important to plan for the potential of long term care well before the need for it arises to protect your assets.

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