How to Open an Estate Account in Pa

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No need to fear the Probate Process in Pennsylvania

June 21, 2021

By Raymond M. Roberts, Esquire

Probate… the very mention of the word can be scary for some people.  Countless newspaper ads and direct mailings with invitations to financial planning seminars stoke fears of the probate process and the need to avoid it.  These ads and mailers tout the benefits of utilizing "Living Trusts" to avoid probate and to save your family from the probate process.  The problem is that in order to avoid probate, all of your assets must be placed into the trust.  If you have assets that remain in your name at the time of your death, your estate will still have to go through the probate process.  On top of that, if you set up a "living trust," which is also known as a revocable trust, your assets will still be subject to federal and state death taxes.  While in some states, such as Florida and New York, probate can be a nightmare, in Pennsylvania, it really isn't anything that should stir fear in anyone. So, what, exactly, is probate?

What is probate?

Probate is simply the process through which an estate is administered.  The probate process in Pennsylvania is really quite simple and fairly easy and isn't something that should induce any fear or apprehension.  If a person dies in Pennsylvania owning any assets in their name, their estate will need to be probated.  Whether you have a will or not, your estate must be probated. Probate is simply the administration of your estate by a court according to the terms of your will, or if you have no will, by the State's intestate succession laws.

There are two types of estates: testate and intestate.  A testate estate is simply an estate where there is a Last Will and Testament that has been filed with the Court.  An intestate estate is one where there is no Last Will and Testament and the estate will pass to the heirs of the decedent in accordance with the Intestate Succession Law of the state of residence of the decedent.

The probate process begins by opening the estate. The executor named in the will (or if there is no will, a family member) will go to the Orphan's Court for the county in which the deceased resided and open an estate.  This is done through the filing of a document called a Petition for Probate.  The executor will apply for Letters Testamentary.  If there is no will, often a family member will seek Letters of Administration that appoint that person as the Administrator of the estate. The administrator serves the same function as an executor, the only difference being that the executor is appointed by the deceased in his or her will and the administrator is appointed by the Court.  Letters Testamentary or Letters of Administration are documents issued by the court that authorize the executor (or the administrator) to act as the personal representative of the deceased and to administer the estate.

Where there is no will, there may be multiple parties who may qualify to serve as the administrator of the estate.  Often, because of the amount of work involved, many family members will consent to one member being the administrator and will file with the Court a document called a renunciation, which is a legal document by which they formally withdraw from any consideration for appointment and consent to the appointment of a specific person. On the other hand, they may contest the appointment of one person over another, resulting in litigation to determine who will be appointed as the administrator of the estate.

When the personal representative is appointed, and Letters Testamentary or Letters of Administration are issued, the Court will also issue a special document commonly referred to as a Short Certificate. The Short Certificate is an official statement of the court verifying that the executor or administrator has the legal authority to act on behalf of the estate. The executor or administrator will need to present this document to insurance companies, banks, transfer agents, and governmental agencies such as the Social Security Administration or Veteran Affairs, when transferring assets or applying for benefits. Be sure to order enough Short Certificates to meet your needs. Usually, around twenty will suffice, but additional certificates can be obtained from the court at a minimal cost if needed.

When the estate is opened, the will is filed with the Court as an attachment to the Petition for Probate.  As part of the probate process, the will is authenticated by the Court. If there are witnesses and the will is not notarized, the witnesses must come to the Orphan's Court and, under oath, authenticate their signatures and the signature of the testator.  This step in the probate process can be avoided if the will is executed in the presence of a notary public. The notary, by placing his or her seal on the will, authenticates the signatures. A notarized will is called a self-proving will for this reason.  Once the Petition for Probate has been filed and approved, the Clerk at the Register of Wills will swear in the executor or administrator.  At this point, the executor or administrator can now, officially, administer the estate.  The executor or administrator will be issued a document called a "Short Certificate" that will be used as evidence of their appointment and authority to administer the estate.  Get enough certificates to give to banks and brokerage houses and other institutions as needed when administering the estate.

The first job of the executor or administrator is to notify all of the beneficiaries named in the will, or all of the heirs who are entitled to a share of an intestate estate, of the opening of the estate and, in the case of a testate estate, to provide them with a copy of the will.  This is done by issuing a written notice on a standard form available from the Register of Wills Office.  Once the notices have been mailed to each beneficiary or heir, the executor or administrator will file a certification with the Court that the notices have been given.  Also, at the opening of the estate, the executor or administrator is also required to publish legal notices in the county legal journal and a general circulation newspaper. These legal notices are important because they put the world (and all creditors of the decedent) on notice that an estate has been opened.  Creditors have only one year from the date of publication of the legal notice to file a claim against the estate.

Once the estate has been opened and the beneficiaries or heirs have been notified, the executor will turn to the task of identifying the assets of the estate and, when appropriate, liquidating them.  Once the assets are identified and assembled, they will be listed on a document called an "Inventory" that is filed with the Orphan's Court.  This inventory will list all of the assets of the deceased along with the value of each asset as of the date of death.  Certain assets are excluded from this inventory and are considered to be outside of probate. Examples of such assets are life insurance policies made payable to anyone other than the estate of the deceased and jointly held property such as bank accounts or real estate. These assets will automatically become the property of the survivor upon the death of one of the parties. It must be noted, however, that while these assets are not listed as part of the estate in the inventory, the decendent's share is still subject to the Pennsylvania Inheritance Tax and/or Federal Estate Tax (if applicable). So, if the deceased held a joint bank account with his child valued at $50,000, the child will receive the entire amount; however, one-half will be assessed to the estate for estate tax purposes and the estate's tax liability will be increased.

Pennsylvania Inheritance Tax

Ben Franklin once said "The only two certainties in life are death and taxes."  He could have added a third…death taxes.  There is a federal estate tax to which most of us will not be subject due to the unified tax credit.  While most people don't have to worry about the federal estate tax, which excludes up to $11.7 million for individuals and $23.4 million for married couples in 2021 (up from $11.58 million and $23.16 million, respectively, for the 2020 tax year), there are seventeen states and the District of Columbia that may tax your estate, an inheritance, or both, including Pennsylvania[1]. While most of us will escape the federal tax, those of us who die as residents of Pennsylvania will be subject to the Pennsylvania Inheritance Tax.

Pennsylvania's Inheritance Tax is based not just on the value of the assets, but also the degree of relationship between the beneficiary/heir and the decedent.  Inheritance Tax applies to all assets, including jointly held property and assets that have a beneficiary designation (such as a brokerage account with a transfer on death designation).  The estate is required to file an inheritance tax return with the Pennsylvania Department of Revenue within nine months of the date of death.  Very often, it takes a few months to identify the assets and expenses of the estate in order to file the return.  The estate can, at its option, prepay the inheritance tax.  If the tax is pre-paid within 90 days of the date of death, the estate will receive a five percent (5%) discount on the tax due.  Once the assets are identified, an estimate can be made of the tax due, taking into account known expenses, and that amount can be paid.  Any overpayment will be refunded upon filing the inheritance tax return.  Shortfalls are paid at face value as long as they are paid prior to the nine month filing deadline.  If paid later, penalties and interest may apply.

As stated above, the amount of inheritance tax due depends on the date of death value of the asset and the degree of relationship between the deceased and the recipient.  There are four rate brackets:  0%, 4.5%, 12% and 15%:

0%       Exempt Beneficiaries:  Assets that transfer to a surviving spouse, transfers to 501(c)(3) charities and to the government are exempt from Inheritance tax.  In addition, transfers from a deceased child under 21 years of age to a parent are exempt as well.

4.5%    Class A Beneficiaries:  Transfers to lineal descendants or ascendants.  This includes transfers between a parent and child, grandparent to a grandchild or from a child (over 21 years of age) to a parent.  The term "child" includes adopted children and step children of the deceased.

12%     Class A1 Beneficiaries:  Transfers to siblings.  This includes half-siblings, but not step-siblings.

15%     Class B Beneficiaries: Transfers to anyone who is not a surviving spouse, lineal descendants or ascendants or siblings are taxable at a rate of 15%.  This would be aunts/uncles or nieces/nephews, step-siblings, friends or neighbors.  Unfortunately, this also includes long-term "significant others" who may have lived together for years and have had or raised children together.

Once the assets are assembled, the executor will assemble the debts. These debts may include funeral expenses, unpaid credit card bills and loans, utility bills or any other obligation owed by the decendent. These debts will be paid from the estate's assets. Next, the "death taxes" (federal estate tax and/or state inheritance tax) will be paid from the estate. The lawyer will be paid his or her fee and the executor or administrator will be paid his or her commission.  Then, after all of this, if anything is left, which is known as the residual estate, it will be distributed to the beneficiaries.

Before the residual estate is distributed, the executor will file an accounting with the Orphan's Court that will state in detail what assets comprised the estate, what debts were paid by the estate and what is left to distribute to the heirs.  The court will conduct an audit of the accounting. During that process, individuals or entities with an interest in the estate (either as a beneficiary or a creditor) may participate in the process to, among other things, object to distributions or payments made or to be made by the estate.  When the process is complete, a Decree of Distribution will be issued directing the executor to distribute the assets and close the estate.  The executor will be discharged at that point and the estate would be closed by the filing of a Rule 10.6 Status Report.

In some cases, the estate may not have enough assets to cover the estate expenses.  This is known as an insolvent estate.  In such cases, during the audit process, the Court will determine whether creditors receive all or a pro-rata share of their claims.  The assets of the estate would be divided among and distributed to creditors and the beneficiaries of the estate would not receive anything.  If the assets were insufficient to pay the entire claim, the remaining claim would be discharged.

In the case of solvent estates where all claims have been paid and assets remain for distribution to beneficiaries or heirs, the filing of an accounting and the audit process can be avoided through a family settlement agreement among the executor and all of the beneficiaries or heirs.  Settlement of the estate through a family settlement agreement will save the estate the cost of the accounting and audit process and associated legal fees and is generally recommended when it can be accomplished without conflict.  If there are any adverse claims between beneficiaries or with the executor, the accounting and audit process are recommended.

In very basic terms, the probate process can be summarized as follows:

• All of your assets are assembled.
• All of your debts are assembled.
• The debts will be paid from the assets of the estate.
• The costs of administration are paid. These costs include attorney's fees and executor's commission. If there is not enough cash on hand to pay these costs, estate assets will be sold to pay them. Then, the estate taxes are paid.
• Finally, whatever is left over after all the debts, costs, and taxes are paid is distributed to the beneficiaries named in the will or to the heirs according to the laws of intestate succession.

If you have questions about the probate process in Pennsylvania, contact us online or call (412) 338-1100.

[1] Eleven states have an estate tax: Connecticut, Hawaii, Illinois, Maine, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington. Washington, D.C. does, as well. Estate taxes are levied on the value of a decedent's assets after debts have been paid.  Iowa, Kentucky, Nebraska, New Jersey, and Pennsylvania have only an inheritance tax — that is, a tax on what you receive as the beneficiary of an estate. Spouses and certain other heirs are typically excluded by states from paying inheritance taxes.  Maryland is the lone state that levies both an inheritance tax and an estate tax.

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How to Open an Estate Account in Pa

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