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Legal
Issues Following the Death of a Loved One
A General Guide Provided by Herr & Low, P.C.
1. Are there legal matters which I must take care of immediately?
No, there are no legal matters that are more important than dealing with family,
friends, and funeral arrangements. Focus on yourself and your family, taking
care of these arrangements.
Some times it is convenient to begin work promptly on the legal issues, especially
when family members who live at a distance are in town and they need to be
involved. Some times there is no work done on the legal matters for a week
or two, as more pressing issues are being addressed.
You can deal with one legal matter at the funeral director’s, the purchase
of Death Certificates. It is difficult to estimate how many you will need,
but the usual advice is to order a few more than you think you will require
because they are much easier to obtain from the funeral director than they
will be later on, if more are needed. It is not unusual to order 15 to 20
Death Certificates.
2. Who pays the funeral bill?
Some funeral directors appreciate that funds will not be available from the
Estate for a few weeks, and will wait a reasonable time for payment. Others
request payment at the time of the funeral, so that a family member may need
to advance funds or charge the funeral bill – in effect, loan money
to the Estate -- which will be repaid as soon as the Estate has been opened,
assuming that the decedent left adequate funds to pay the bill.
A life insurance policy may cover the cost of the funeral arrangements, but
those funds will not be available until after a claim has been filed with
and paid by the company, normally a few weeks after the funeral. The decedent
may have prepaid the funeral bill, although this certainly isn’t necessary
and some prepayment arrangements have unexpected drawbacks, including the
loss of a tax deduction for the Estate.
3. What is required to cash in a life insurance policy?
Life insurance companies have different procedures for cashing in their policies.
Generally, they will require a Death Certificate, a Claim Form, and perhaps
the return of the original policy. You should contact the insurance company
to find out their requirements and to request any necessary forms.
4. Can I continue to use the Power of Attorney given to me by the
decedent?
No, a Power of Attorney ends immediately upon the death of the one who signed
it, the Principal. If actions need to be taken on behalf of the Estate of
the decedent, an Executor must be appointed to act as the legal representative
of the Estate. A Short Certificate will be issued by the Court to confirm
the appointment of the Executor after the Will is probated. (The nickname
“Short Certificate” describes the document, half a page in length,
which is the short version of a longer form the Court can also issue if requested.)
5. What is probate?
Probate is the legal process in which a person or a qualified institution
is appointed by the Court to be in charge of an Estate. The person or institution
who is put in charge is called the Executor (if named in a Will), or the Administrator
(if there is no Will). A Petition for Probate is taken to the Lancaster County
Courthouse and the Executor (or Administrator) is sworn in by a clerk in the
office of the Register of Wills.
By the next day the Register of Wills issues a Short Certificate authorizing
the Executor to act for the Estate. The Executor then begins the work of gathering
up the decedent’s assets, paying the bills and, eventually, any inheritance
or estate taxes that are due, and then distributing the Estate to the beneficiaries.
The cost of opening the estate record at the office of the Register of Wills
depends on the size of the estate - for an estate of half a million dollars
the cost is presently (2004) about $175.00.
6. Will the Estate owe Pennsylvania Inheritance Tax?
The Estate of a Pennsylvania resident will have to file an Inheritance Tax
Return. There is no tax on gifts to a surviving spouse. The tax rate to others
depends on the relationship of the decedent to the individual receiving a
gift: 4.5% on gifts to parents, children, or grandchildren; 12% on gifts to
siblings; and 15% on gifts to any other individuals. There is no tax on a
gift to charity.
The tax must be paid within nine months after the date of death. A discount
of 5% of the amount paid is available for payments made within the first three
months.
7. Will the Estate owe Federal Estate Tax?
There is no Federal Estate Tax on gifts to the surviving spouse.
Under present law, Federal Estate Tax on gifts to others is only due on very
large estates, on the portion of the estate over $1,500,000. This threshold
is scheduled to increase to $2,000,000 in 2006 and to $3,500,000 in 2009.
A tax return must be filed if the estate is over the threshold. No tax is
due on gifts to a charity. The tax return must be filed within nine months
after the date of death.
8. Do some assets “avoid probate”?
Yes, certain assets are not distributed by the Will, and are therefore not
“probate assets,” although they are still subject to Pennsylvania
Inheritance Tax. For example, assets held by a Revocable Living Trust are
not technically owned by the decedent, although they are fully taxed in the
decedent’s estate. They are not generally distributed according to the
decedent’s Will but according to instructions in the Trust document.
Retirement assets, annuities and life insurance are additional assets that
are not distributed by the decedent’s Will but according to the beneficiary
designation in the various documents setting up these accounts.
Assets held jointly with another person with a right of survivorship are also
not distributed by the decedent’s Will but belong to the surviving co-owner
by the operation of law. Although owning assets in joint names may ease the
administration of an estate – and is the preferred form of ownership
between husband and wife – it can have unexpected consequences when
the co-owner is not a spouse, such as the transfer of capital gains tax liability
to the surviving owner of appreciated assets.
Specific Legal Issues Following the Death of a
Spouse
When a spouse passes away there may be no need to open an Estate, but there
are certain things you will need to deal with. This advice is in addition
to the items already covered.
9. Do I need to probate my spouse’s Will?
Usually this is not necessary. It depends on whether your spouse owned assets
in his or her own name. If so, you will usually not be able to take control
of those assets without probating your spouse’s Will to have an Executor
appointed, since your spouse’s Power of Attorney can no longer be used.
If all of your assets were in joint names, they now belong to you without
the need to open an Estate, file an Inheritance Tax Return, or take other
legal action.
If the only asset in the name of your spouse was an automobile, you can change
the title into your own name at a motor vehicle license transfer office (such
as AAA) without opening an Estate. They generally need a Death Certificate
and the original vehicle title, and may ask to review a copy of your spouse’s
Will.
10. Should I take my spouse’s name off our joint accounts?
Generally this is a good idea, since it is easier for you to change the registration
of your accounts as the surviving owner than it will be for your Executor
if those accounts end up in your Estate. One exception is the checking account
– some women don’t remove their husband’s name from the
checking account to avoid signaling to strangers that they are single and
living alone.
11. Should I take my spouse’s name off any title to real estate?
If you own real estate jointly with your spouse you will be the sole owner
of that property following your spouse’s death. There is no need to
have a new Deed prepared listing only your name, since it is an easy matter
to explain in the Deed when you eventually sell the property, or when your
Estate sells it.
12. Should I notify anyone regarding the death of my spouse?
Even if all of your assets were in joint names, you should notify:
A. Social Security – the funeral director notifies Social Security
so that checks will no longer be sent for your spouse. However, you should
call Social Security if your spouse’s check was larger than yours, since
you can continue to receive the larger amount, but you must ask for it.
B. Spouse’s Pension Plan or 401(k) Plan Sponsor.
C. Investment broker - Your investment broker should be called to conduct
a review to see if changes are needed. For example, if you and your spouse
have held an investment jointly for many years and were reluctant to sell
any of it due to the capital gains tax, your broker should know that the capital
gains on your spouse’s half of that investment disappeared when your
spouse passed away. Capital gains on that half of the investment will be calculated
from the date of your spouse’s death, not from the date you acquired
the investment.
D. Banker – You may want to review IRA’s and other accounts
to see if changes are appropriate.
Please Note: It is the purpose of these questions and answers to provide
a general guide to various legal issues so that you can be better informed
when you talk with your attorney. They are not intended to provide legal advice,
which you should seek from your attorney. There is no substitute for good
legal advice specific to your situation. Please feel free to call on us at
Herr & Low, P.C., to assist you with estate planning and settlement legal
issues.
Revised: August 5, 2004
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