One of the practice areas of Sechler Law Firm is Estate Administration. Amy Rees is the law firm’s managing attorney, with vast experience and knowledge when it comes to Estate Administration. In addition to her law degree, Amy got her LLM in taxation and this is a specialty regarding the taxes involved with doing estate planning and estate administration. There are nuances within the tax code, and I am more comfortable getting involved now because Amy is on the team. She has that knowledge and experience, and she’s a wonderful asset to the team. Our most recent radio show and podcast is with Amy and myself, talking about the estate administration process. If you missed it, please listen to the podcast on Spotify or Apple Podcasts.
Why Estate Planning and Estate Administration?
I asked Amy why she likes this practice area, and why she’s not doing divorce or Criminal Law. She responded to say that she likes estate planning and estate administration, because it is an area that affects everybody, and she loves being able to help people. As Amy sees it, she would be helping you and your next generation. It really doesn’t matter if the client has $20,000 or $20 million. The fact is that they worked hard for that money, and we need to give the same care and attention to these clients. We need to make sure that their wishes are carried out, so that family members get the leftovers. We don’t want you to lose your money to taxes, long term care expenses or administrative fees.
Estate administration refers to the legal things that need to occur once you have lost a loved one, and you’ve been named the executor or the trustee. After losing a loved one, the first week or two after their passing, allow yourself time to grieve. When you are able to, you would need to get death certificates from the funeral home. There is no rule of thumb for how many to get, but aim to get at least five death certificates at the outset. If you need more, you can get them at a later stage from the funeral home.
The Next Step
Once you receive the death certificates, please come in to meet with us. We first need to determine if your loved one had a Will. If they do, whoever is appointed under the Will, as executor, will get appointed in court, and we’ll start administering the estate.
If there is no will, it is tricky because there is an order that people are allowed to serve. Typically it’s the surviving spouse first and then the children. Assuming there are five children, all five children have the ability to serve. This gets complicated and can lead to family fights over who is the most important. Next we go to the courthouse and open the estate as the Administrator. There are rules they have to follow in their role as a fiduciary. Most of the time, the attorney will guide them through the right process, so that they do everything ’by the book’. If they don’t comply, they could be held personally liable for making mistakes, which can be costly and stressful.
What is Required?
As a fiduciary, one of the duties includes getting a list of all the assets of your loved one. You also need to collect information about the expenses and debts. There might be bills that need to be paid, but we can’t pay them yet, as there is a process to follow. There are different classes of debt, and some creditors need to be paid before others. This is why 99% of executors hire a lawyer, because it is a confusing process. Getting the best information at the very beginning, ensures that you administer the estate properly and don’t miss any deadlines.
What and When Are The Deadlines?
One of the earliest deadlines is filing for the Inheritance Tax. In Pennsylvania, if we have beneficiaries who are not our spouses, there is the Pennsylvania Inheritance Tax. There is a tax of 4.5% to lineal descendants, 12% to siblings and 15% to everybody else. If we make a prepayment of the estimated inheritance tax, within three months of the date of death, we get a 5% discount. It does not mean we need to have the tax return done and filed at the three month mark. However, it’s the first deadline that comes up with real financial consequences if we miss it.
This scenario is based on people having some money. Where there is not much money, an analysis of the assets is done, before it goes to the courthouse. If a loved one only had joint assets, and beneficiary designated assets, there’s no reason to open up an estate. Those assets would be transferred directly to a beneficiary. People think that the Will governs everything and they get confused about how a Will and beneficiary designated assets work together. If people have a lot of beneficiary designations, it doesn’t go through the Will. If you’ve named somebody as a designated beneficiary, they get the money.
Beneficiary Designation is Not Always The Answer
We may have to pay inheritance tax on the money, but it’s not part of the estate. Beneficiary designations can also receive transfer on death from investment accounts. If you are a joint account owner, once you pass away, the joint owner is now the owner of that asset. When these assets are transferred to people through beneficiary designations, there is sometimes no money in the estate to pay taxes. It is therefore not good to rely too heavily on beneficiary designations. With a Will we don’t only answer the question of who gets the money when we die. A Will also answers the question of what happens if my child dies before me, or maybe they’re underage or even disabled. A Will also answers the question of what happens if the kids go through a divorce.
Assuming there’s some money in the estate, and we have paid the inheritance tax at the three month mark, we can determine what assets or money is actually in the estate. We can then start paying bills. There is an order of who gets paid, and the courts get paid first with probate. The attorney’s fees and the funeral expenses are paid next. Once that is done, if there are any credit card accounts, they are paid. When there is not enough money, whatever money there is left, is split between the credit card accounts and paid.
When Does The Family Get Their Inheritance?
If there is still money, and expenses are paid, we consider who gets an inheritance. This process can take a year and is dependent on how quickly we get the asset and the expense information. There is a one year period from the date of death, and advertising of the estates, where any creditors can make claims. We advise the fiduciaries of the estate to wait until that one year period has passed before we close the estate.
Why We Use Trusts
When people come to our workshop, and learn about the different estate planning tools, I often suggest they use trusts. Depending on the type of trust you have when you pass away, the assets can be out of reach for creditors. Based on a scenario where if I pass away from a car accident, which is my fault and which also claims somebody else’s life, this could result in a lawsuit. While I have insurance, my assets which I owned may be subject to this lawsuit, or any other creditor claims such as medical expenses or debt.
However, if my assets are in an asset protection trust, it means that creditors can’t get the money. Also, there is not a 12 month waiting period before doing a distribution to the kids. The money will get to the kids faster than we could with an estate or a revokable trust.
The lesson to take from this is that you need to be proactive with your estate plan. Don’t put your head in the sand, don’t forget to update your Will. If you don’t do things correctly with estate administration, you can potentially be personally liable. We urge you to get assistance to help you. You have lost a loved one, so allow yourself time to grieve. Let us handle the stress on the legal side. We take care of you, and help you to complete the estate administration process correctly.
If you need help with estate administration, call us today at 724 841 1393. Visit our website and read more. You can also download a free guide about Estate Administration.
We have numerous videos on our website which you might find informative. HERE is a video which may help you…
