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.
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.