The legal authority provided by the Register of Wills (there is one for each county) is for the executor to act is evidenced by two documents: Letters Testamentary (a document so ignored now that some Registers don’t even give it to you unless you ask) and the Short Certificates (which everybody wants to prove the authority of the Executor to act; we generally get five or seven to start).

These documents identify the Executor (also called Personal Representative where there is no will), who is a fiduciary of the estate for the benefit of the ultimate beneficiaries (and the Executor may also be a beneficiary).   Every legal act the Executor takes is usually accompanied by providing a Short Certificate and Death Certificate.

The Short Certificates typically have a cost, usually $5 or $10 each, so don’t get more than you need – each separate item of property that the decedent owned (bank account, savings account, investment, real estate, automobile, etc.) will probably require that the Executor provide a Short Certificate to somebody in order to change title from the deceased person to the living Executor who is acting on behalf of the Estate.  The fundamental issue is that a deceased person cannot accept, transfer or give a good title to property to anyone.

The two problems most often encountered here are either no executor is named because there is no will, or multiple executors are named and the multiple executors don’t get along.  If there is no will, and no dispute as to who should act as executor (for example, the decedent was married and the spouse can act, or the decedent only had one child and the child is an adult and prepared to act), this is easily solved.

But if brothers and sisters, for example, who don’t get along are both named in a will, or there is no will where there is not a trust relationship between the most likely people to act as personal representative, then this can snag up.  In Pennsylvania, it is a simple matter for someone to renounce their role as an executor, a simple form will do it, but often people are somewhat confused about the differences between an executor and a beneficiary.

Someone is concerned that if he or she is not a named executor, they will not get their share of an estate.  So even though it may be cumbersome, they want to be involved in every mechanical act of administering the estate.  Gaining the trust of the various beneficiaries, so that we can work with one executor or co-executors who get along and are cooperative with each other and us, is one of our goals.

The purpose of publishing notice of the estate administration is for the protection of the estate from stale claims, and protecting the executor from legal liability for late or unknown claims against the estate.  Publishing notice of the ‘grant of letters testamentary’ (opening up the estate for administration) is mandatory – see Section 3162 of the Probate, Estates and Fiduciaries Code (PEF Code).

If a creditor of the estate has not filed written notice of a claim with the personal representative within one (1) year from the first complete advertisement of letters, and the personal representative is not aware of the claim, the personal representative may distribute personal and real property without the necessity of an accounting and without liability to such claimant. See PEF Code §3532.

In other words, once the estate’s property is distributed, after one year from the date the last publication has been made (it has to run three times in two publications) the creditor will be out of luck, because the executor never bears responsibility for the debts of the estate, except in unusual circumstances.  There are companies which can be contacted who will arrange for a fee of a few hundred dollars to handle the mechanics of running the necessary advertisements and providing proof of such advertisement to the executor or his or her attorney.

There are certain notices which must be mailed out to the beneficiaries in the administration of an estate, and also a certification that these notices have been provided given to the Register of Wills by the Executor.  These are done on forms obtained from the Register of Wills. There is also a form to fill out which says you mailed out the necessary forms to the beneficiaries.

There is no ”reading of the Will” (despite its time-honored place in legal folklore).  A Will, once having been presented to the Register for probate, is a public document which anyone may view, simply by going to the Register’s office.  Dealing with beneficiaries sometimes requires tact and patience.

Like any complex legal process, people have a variety of different views about it, often based on partial information, and they get the advice of their friends – who are also giving their opinions based on partial information.   We take different views on talking with beneficiaries – if the Executor is on good terms with the beneficiaries and wants us to do so, we take telephone calls from beneficiaries and answer their questions.  This is most of the time.

But if a beneficiary is being very difficult, such as sending us unpleasant letters (typically complaining bitterly about some aspect of the estate administration, such as the disposition of some certain item of the decedent’s personal property), then we do not respond.

At the end of the day, for the beneficiaries to receive any financial benefits, there are only two scenarios: (1) the beneficiary signs a document called a family settlement agreement (this goes by a number of different names), that completely releases the Executor from any legal liability or further claims from that beneficiary, as a condition of getting his or her check, or (2) on behalf of the Executor, we file an Accounting with the Orphans’ Court to obtain a Court Order which approves of our client’s handling of the Estate.

Most of the time, beneficiaries, who want their money sooner rather than later, will agree to sign the Family Settlement Agreement.

Basic to the whole exercise of estate administration is gathering the assets of the estate in one place, once appropriate legal authority has been obtained from the Register of Wills.  The estate is a separate (fictitious) legal ‘person,’ so it gets its own EIN number (Employer Identification Number, like your Social Security number).

Generally, a bank where a decedent had a checking or savings account, or investments with a stock brokerage, will require a short certificate and a death certificate.  Another duty of an executor is to make appropriate claims to insurance companies where there are policies in place which are payable on the death of the decedent.  Payment on these policies is made directly to the beneficiaries pursuant to contract law (the insurance policy); the insurance policy claim proceeds are not an estate asset.

When gathering estate assets, you want to obtain a date-of-death balance from the institution involved.  This is a critical number for the state inheritance tax return.  Typically, we obtain one-third of our fee when the estate assets have been substantially gathered.

If a large sum of money is being gathered, and it appears as if the assets involved in the estate are going to substantially outweigh any estate obligations or debts, then the Executor ought to be thinking about making interim distributions of funds (leaving plenty for contingencies) to the beneficiaries, at least every three months (quarterly).

The alternative is to devise appropriate investments for the estate assets, a fiduciary duty.   Given the relatively paltry interest rates available these days for guaranteed funds such as CDs, we find everyone is happier just seeing the money distributed early, rather than having the executor take on the investment duties to invest funds safely and prudently, which would be a fiduciary duty if large sums were being held for lengthy periods of time.

Some assets are harder to dispose of than others.  Items of sentimental value, but little financial value, can be distributed by the Executor by means of arbitrary choice, or people can take terms selecting items, or there can be a lottery or a bidding system, in which people get points to bid – many different ways to dispose of these items.  In the Wills we draft, we provide a means for the person making the Will to include a memo with the Will disposing directly of personal assets which they do not want to be sold and turned into liquid cash.

Real estate is the most common non-monetary assets and generally the most important contributor to the total Estate assets.  Often there are decisions the Executor has to make about how much fixing-up of the decedent’s home is necessary in order to get the best price.  Sometimes real estate is rented out for considerable periods.

On occasion, people who are living in the decedent’s home have to be encouraged (sometimes with legal means, sometimes with just verbal discussions) to leave the property if they have no right to be there. Setting the listing price can sometimes generate considerable discussion among co-executors or beneficiaries, as one may be taking an optimistic view of the real estate market, and one a pessimistic view.

The homeowner’s insurance company has to be notified that the home is no longer occupied, and an endorsement obtained in order to maintain home insurance after 30 days of a vacancy.

All the typical problems of selling real estate may enter in here, too numerous to outline in this summary of estate administration.  Eventually, the real estate will sell.  At the settlement table, the title company will require that a sum of money be held in escrow, pending filing an inheritance tax return and payment of inheritance taxes, since the failure to file and pay would create the potential of a lien on the real estate.

The proceeds are deposited into the estate checking account.  When the inheritance tax return is filed and accepted by the Department of Revenue, then that document is forwarded to the title company to obtain the escrowed funds.

Generally, once an estate checking account is established with its own EIN number and checks are obtained, paying the bills is quite straightforward.  Keeping track of what is paid is important because typically these are all deductions against Pennsylvania’s Inheritance Tax liability.

Generally, most creditors of an estate are willing to be patient as long as they receive some assurance that their bill is going to be taken care of.  A typical situation is that real estate has to be sold, or stocks transferred by a brokerage, and until those steps are finalized, the estate does not have much readily available cash.

A more difficult problem arises when there are not sufficient assets to clear all the estate’s indebtedness.  Pa.C.S. section 3392 provides the rules of the road if the applicable assets of the estate are insufficient to pay all ‘proper’ charges and claims in full.  In that event, claims are paid in the following order:

1 – costs of the estate administration

2 – the family exemption

3 – costs of the decedent’s funeral and burial, and the costs of medical care furnished to the decedent within six months of his or her death, including medical services provided in the last six months and including services provided under a medical assistance program within that time (the Medicaid Lien)

4 – cost of gravemarker

5- rent for occupancy of decedent’s residence for six months immediately prior to death

5.1 – Claims by the Commonwealth of Pennsylvania and its political subdivisions

6 – all other claims.

Approval for the settlement of an insolvent estate is obtained by a petition filed with the Orphan’s Court, with appropriate Notice to all interested parties.  We are currently challenging a Medicaid lien for nursing services provided by the Pennsylvania Department of Public Welfare.  Since the matter is currently being disputed, no statement can be offered on the final outcome.

Pennsylvania requires that an Inheritance Tax Return be filed within 9 months of the decedent’s death pursuant to the Inheritance and Estate Tax Act.  A discount of 5% of the total Inheritance Tax Due is available if the Inheritance Tax is paid within three months of the death of the decedent.

Typically, in the first month or two we make a ballpark estimate of what we believe the final Inheritance Tax bill will be (usually we don’t have enough information to make an exact calculation within the first three months), and then slightly ‘overpay’ what we expect the Inheritance Tax assessment to be, in order to obtain the discount.

Prior to nine months after the decedent’s death, we file a complete Inheritance Tax return, claim credit for our previous payment as well as credit for the 5% discount, and get back some type of refund for the estate, much like an income tax refund.

That way, when the final numbers come in for the estate assets, liabilities and expense, if we slightly underestimated what the total tax would be, by deliberately overpaying by a modest amount within the discount period, we are sure of obtaining the discount.  Of course, that only works where the estate has enough readily-available cash to make the early payment.

The basic inheritance tax rates for Pennsylvania at the present time are 0% between spouses; 4.5% between parents, children, grandchildren; 12.5% between siblings, cousins, nephews, aunts, uncles; 15%, everybody else.  There is no income tax on gifts received from an estate, a point that is welcome news to many beneficiaries.

The income taxes have already been paid once on this money – they don’t have to be paid again.  The only income tax obligation arises is that if the estate itself makes money in excess of $600 because of its investments.  Also, the last year that the decedent was alive, which will always be a partial year (unless they passed on December 31), will also require an income tax return.

At the present time, few estates presented to us for administration have an obligation for federal inheritance tax.

The Base Exclusion amount, used for both the federal estate tax exemption and the federal gift tax exemption is $5,340,000 in 2014 [IRC §2010(c)(3)]. The annual gift tax exclusion will remain at $14,000 in 2014 [IRC §2503(b)], but generally, this gift tax exclusion number is misunderstood.  It is only relevant if an estate would have a federal estate tax obligation, but for gifts given in excess of $14,000 annually by an individual donor.

Most people are not in this category because they don’t have $5 Million plus in their estate net of allowable expenses and deductions;  otherwise, you can give away as much of your money as you want without regard to the federal gift tax exclusion (although gifts given within one year of death are added back into the estate in excess of $3,000 for purposes of Pennsylvania’s inheritance tax).

During the course of administering an estate, there is sometime considerable funds sitting in the estate checking account.  If it is absolutely clear that the estate is going to be easily able to pay all its obligations, these funds may be available for interim distributions to the beneficiaries.  In our office, we have no desire to see large funds just sitting idly in an estate checking account.

After three months of sitting in an account, the executor, as a fiduciary, may have an obligation to invest the funds to obtain some type of return.  Since the interest rates obtainable at the present time are so low and unappealing, we prefer obtaining releases from the beneficiaries and sending out some of the funds early, leaving plenty for contingencies.

This is a win-win for everyone concerned.  The executor doesn’t have to worry about investing the funds, or selecting bank Certificates of Deposit (CDs) or how much to put in CDs – and the beneficiaries get nice checks in advance of final distributions.  We simply account for these interim or advance distributions in our final ‘informal’ accounting (which in fact, is rather formal), to show how much everyone is entitled to in gross, how much they have already received, and what their net final distribution will be.

Keeping scrupulous financial records is absolutely essential, however.  This is particularly true if some beneficiaries are getting in advance distributions in forms other than cash, e.g., if someone gets the deceased person’s vehicle.  Transferring a vehicle to one of the beneficiaries involves some paperwork with an auto tag title notary, but it also involves getting a fair market value for the vehicle and treating the transfer of the vehicle as an advance to the beneficiary who takes it.

The treatment of joint bank accounts where there are multiple beneficiaries, but only one of those beneficiaries on the joint account with the deceased, is too complicated to summarize here and may involve issues of the source of the bank funds, the decedent’s expectations and intent in setting up a joint account, fairness and good family relations, as well as law and inheritance tax obligations.

After all the tasks of estate administration are attended, we obtain releases from the beneficiaries prior to final distribution.  The release we send basically says – you (beneficiary) agree to waive all possible claims against the executor, and if you sign this document to signify that release, then we send the money.

Attached to this release, which goes by a number of different names, but which we often call a Family Settlement Agreement, is our very detailed ‘informal’ accounting which shows where every penny of the estate has been spent, and where every penny has been obtained, and where every penny is going to go.

If for whatever reason, we cannot obtain the signatures of every beneficiary on the release document (everyone must sign before anyone gets a final check), then we are compelled to file a petition for an accounting with the Orphans Court, to obtain a court Order approving our proposed distribution.

Our informal accountings are done so carefully that there is little change necessary to submit the same document to the Court, now called a First and Final (Formal) Account, which is attached to our petition for accounting.  Since the necessity for this formal step is somewhat unusual (the vast majority of the time we get the release document signed by all the beneficiaries), and the steps involved are complex, I will not attempt to summarize that process here.

Once the releases have been obtained and the final checks disbursed to the beneficiaries, we are almost done.  There is a final form submitted to the Register of Wills, letting them know that the estate administration is concluded.  In addition, we do set aside some money as a last minute contingency, which we may hold for as long as a year to 18 months.

The typical issue is that the estate may have made enough money in its investments, or profits on real estate or rental income, for example, so that it has to file a final tax return.  If the estate administration is concluded in the middle of 2013, for example, the 1099 forms or other evidence of taxable income may not appear until early in 2014.

Then an accountant is retained to prepare the final income tax returns required for both the federal and state tax returns.  Money has to be available to pay the accountant and to pay whatever taxes are due.

Once the taxes are paid, there is no magic date by which the estate knows that the returns have been accepted, but we generally assume that if a year goes by, and we don’t get any correspondence back, then the various income taxing authorities are not going to bother any further.

The releases that we have the beneficiaries sign always commit them to return funds, if necessary, to fund the estate if some unexpected obligation does arise, but as yet, we have never had to try to get any monies back, once distributed.  After the final waiting period has elapsed, then we deduct whatever last expenses there are and disburse the final contingency amount of funds in equal shares to the beneficiaries without requiring any further signatures.

The short answer is maybe, depending on the executor and his or her wishes.  In Pennsylvania, fiduciaries (which includes executors) are entitled by law to a reasonable compensation for their services.  In some cases, the executor is one of the beneficiaries and doesn’t want to take money by way of ‘services as an executor’ (which would create an income tax obligation), but rather wishes to take the money by way of devise (gift through the will), which does not create an income tax obligation.

In some cases, the executor or personal representative does want a fee and is entitled to one.  We use the fee schedule attached to a well-known case in Pennsylvania called the Johnson Estate for the executor’s fees.   Discussing this in a blog post is complicated – in practice, we have found that this question is relatively easy to resolve, based on the facts surrounding the estate administration.

For more information, or to contact us, click on this link for our main website for Wolpert Schreiber P.C.  The information contained in this blog post is intended to be general and is not intended to take the place of your own legal counsel.