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Be Wise About Probate and Inheritance Taxes – Keystone Elder Law

One aspect of the practice of elder law encompasses assisting individuals with administering estates of their loved ones. Many people are unfamiliar with the probate process, the terminology, and the deadlines involved in properly administering an estate.  This article will provide some basic knowledge about the probate process and inheritance taxes in Pennsylvania.

What is a Last Will and Testament?

A Last Will and Testament (a/k/a “Will”) is a legal document which governs how an individual’s probate property is distributed when they pass away. The document usually names an individual as Personal Representative.  Depending on your circumstances, you may also nominate a Guardian for minor children or dependent persons in your Will.  In order for a Will to be valid in Pennsylvania, the individual must have legal capacity to execute the document.

What is a Decedent?

A decedent is another name for an individual who has passed away.

What is a Personal Representative?

A Personal Representative is what we commonly refer to as an Executor/Executrix. This individual is the person appointed to administer an estate.  In cases where the decedent died without a Will, a qualified individual may be appointed Personal Representative.  The Personal Representative has the legal authority to act on behalf of the estate and is responsible for managing assets, paying debts of the decedent and administrative expenses, filing applicable tax returns, and distributing assets to beneficiaries.

What is Probate?

Merriam-Webster defines the term as “the judicial determination of the validity of a will.” In PA, this involves having the Personal Representative bring the decedent’s Will to the Register of Wills in the county where the decedent lived.  The Register of Wills then authenticates the document and files it on record.  If the decedent died without a Will, probate is the process of having a qualified individual appointed as Personal Representative of the decedent’s estate.  This usually involves providing a death certificate and proving your relationship with the decedent.

The Register of Wills also administers an oath to the individual seeking appointment as Personal Representative and officially appoints such individual. The Register of Wills then issues a Short Certificate to the Personal Representative.  A Short Certificate is a document which the individual may use to prove their appointment as Personal Representative, and allows communication with organizations where the decedent held assets.

The Personal Representative must also pay any applicable probate fees. Probate fees depend upon the size of the estate.

What is Probate Property?

Probate property is any property that is in the decedent’s name alone that does not contain a beneficiary designation or have a living beneficiary.

One of the purposes of a Will is to identify the individuals who should receive a particular asset of the decedent. If the asset names a valid beneficiary, there would be no need to refer to the decedent’s Will.

Married couples often have assets titled jointly between them. If all assets are titled jointly with a spouse, an individual may not possess any probate property and probate of a Will may be unnecessary. Single individuals may also avoid probate by arranging ownership of their assets so that all assets are either jointly owned with another individual or contain a valid beneficiary designation.

What Property is subject to Pennsylvania Inheritance Tax?

All real property and all tangible personal property of a Pennsylvania decedent which is located within the Commonwealth at the time of death is subject to PA inheritance tax. Tangible personal property includes, but is not limited to, cash, automobiles, furniture, antiques, and jewelry. All intangible personal property of a PA decedent, such as stocks, bonds, bank accounts, and closely held business interests, is taxable regardless of where it is located at the time of the decedent’s death.  Property subject to PA inheritance tax is not limited to probate property.  Inheritance tax is also imposed on a variety of non-probate assets, such as assets jointly owned with another individual who is someone other than a surviving spouse, held in trust, or those payable to a named beneficiary (e.g., IRA). In the case of a nonresident, all real property and tangible personal property located in the Commonwealth at the time of the decedent’s death is subject to PA inheritance tax.  Intangible personal property of the nonresident is not taxable.

The state does not assess inheritance tax on property owned jointly between husband and wife, so this property is not required to be reported on a PA inheritance tax return.

When is the Deadline for Filing a Pennsylvania Inheritance Tax Return?

The deadline for filing an inheritance tax return in Pennsylvania is nine (9) months from the date of the decedent’s death. An extension of time to file the return can be granted if it is requested before the nine month period expires.  However, interest will accrue on any unpaid tax after the nine month period elapses.  Failure to file an inheritance tax return within the nine month period without requesting an extension may also subject the inheritance tax return to penalties in addition to the interest.  The PA Department of Revenue does offer a discount of 5% of the tax due when the payment is made within three (3) months of the date of death.

Who is Responsible to Pay Inheritance Tax?

When a decedent dies with a Will, the terms of the Will govern who pays any applicable inheritance tax. A Will often contains a tax clause stating that all taxes are to be paid by the estate, regardless of whether the property is probate property or non-probate property.  If there are sufficient assets to pay inheritance taxes, they will be paid from the estate assets.  However, if the Will is silent on the issue or a decedent dies without a Will, the recipient of the non-probate asset may be responsible for paying inheritance tax.

How Long Does the Probate Process Take?

While each estate is different, the typical probate process takes anywhere from 12 to 18 months to complete.   The reason for the length of time is that the deadline to file a Pennsylvania Inheritance Tax is 9 months from the date of the decedent’s death and creditors may make a claim against the decedent’s estate for up to one year following the decedent’s death.  The Personal Representative cannot wind up the estate and make distributions to beneficiaries until the inheritance tax return has been approved and all creditor issues have been resolved.  Incorrectly distributing assets before either of these events may subject the Personal Representative to personal liability for any outstanding inheritance taxes or creditor judgments.

As you can see, the probate process and payment of inheritance taxes can be very intricate. If you live in South Central Pennsylvania and have additional questions, please call our office at 717-697-3223.

By Ryan A. Webber, Attorney