Disclaimer: The following information is provided for general educational purposes only. This does not constitute specific legal advice and each family and client's situation is unique. In reviewing this information, no attorney-client relationship exists between the Law Offices of Scott G. Hoh and the reader. Our firm only officially represents clients when a signed client engagement letter is in place. No one else may rely on this information or claim that in reviewing this general information, an attorney-client relationship exists between the reader and our law firm. Obviously, the internet, websites, blogs, robots, and internet legal companies are not a substitute for a properly licensed attorney. Accordingly, this information is for general informational purposes only.
WHAT EXACTLY IS PROBATE AND IS IT ALWAYS NECESSARY?
Probate or Estate Administration is the legal process for managing the transfer of assets from a person who has passed away to their beneficiaries. Under Pennsylvania law, a petition is filed with the Orphans' Court division of the Court of Common Pleas, and an Executor, Administrator, Trustee, or Personal Representative is appointed and deputized by the court system and now has the necessary legal powers to administer and close out an Estate. If a first spouse passes away, and the entire Estate is given to the surviving spouse, it is often not necessary to open Probate at that time, as the Pennsylvania Inheritance Tax rate from spouse to a spouse is 0%. If anyone other than a spouse is receiving an asset, then it will most likely be necessary to commence some type of Probate process so that a person will have the legal power to commence an Estate, pay the required taxes, pay required bills, and properly conclude the Estate.
WHAT ARE THE STEPS IN THE PROBATE PROCESS?
While there a too many steps to list in detail here, it is helpful to view Estate Administration in three phases. In Phase I, we file a Probate Petition, set up the Estate, establish an Estate checking account, prepare initial notices, and gather information regarding assets and debts. In Phase II, we complete the asset and debt information, pay administrative costs, sell or value real estate, and finalize the Pennsylvania Inheritance Tax Return. Taxes should be paid nine months following the date of death, and a 5% discount is provided for any early estimated payment paid within 3 months following the death. Phase III of an Estate involves the proper finalization and closing of an Estate. This is done by filing an accounting and final notification subject to Orphan's Court review and approval, or, if eligible, a private family settlement agreement.
HOW MUCH DOES PROBATE COST?
First, there are normal filing fees which are based on the size of the final Estate, there are newspaper notice fees, and other administrative costs. If the real estate must be maintained prior to a sale or transfer, the cost of repairing and maintaining the real estate can be paid by the Estate. An Executor or Administrator is entitled to take a fee, and a standard fee schedule has been prescribed by the Courts. The law firm handling the Estate is also paid a fee. This fee can be set either on an hourly amount or on a percentage amount. There is also a recommended fee schedule set by the Courts. However, if there is litigation or other circumstances, it may be necessary to charge additional fees to address these unique circumstances. The Law Offices of Scott G. Hoh typically charges a fee lower than the Court recommended fee structure and is paid 33.3% of the agreed Probate fee at Phase I, 33.3% at Phase II, and 33.3% at Phase III.
IS PROBATE EASY – CAN ANYONE DO THIS OR IS IT NECESSARY TO HIRE AN ATTORNEY?
The old adage in law--a person who represents himself has a fool for a client. In general, while an Executor can file for Probate without an attorney, the process can be complicated, has multiple steps, deadlines, notices, and requirements and almost every Estate has some unique issue or complication. In filing a Probate Petition, the Executor makes an oath and is financially liable until the Estate is closed. One of the most critical tasks is the completion of the Inheritance Tax Return. The only parties who can sign Estate Administration documents, legal filings, tax returns, etc. are either the Executor or Administrator themselves, or a licensed attorney. No one else may prepare, sign and submit these documents to the Court of Common Pleas.
WHAT FEDERAL AND STATE TAXES APPLY TO AN ESTATE?
In Pennsylvania, regardless if an Estate is valued at $5,000, $50,000, $500,000, or $5 Million, etc., the same uniform Pennsylvania Inheritance Tax rate applies. 1. Spouse or Charity = 0%. 2. Parent to Adult Child or Grandchild = 4.5%. 3. Siblings = 12%. 4. Unrelated Friends, Nieces, Nephews, Other Family Members = 15%. This is calculated on the net amount of inheritance after the administrative expenses of an Estate are calculated. Federal Gift and Estate taxes are being phased out and only apply to a very high level of assets (2018 - $11 Million Inheritance or Lifetime Gift Exemption per spouse). Certain income-producing assets may produce income and capital gain taxes for an Estate or Trust after death. In general, most Pennsylvania Probate Estates do not involve federal taxes but do involve Pennsylvania taxes. Given this complexity, it is important to work with an experienced law firm, CPA, and financial advisor.
WHAT STATE LAW IS APPLICABLE AND WHICH COURT HAS JURISDICTION AFTER SOMEONE PASSES AWAY?
All matters regarding Wills, Powers of Attorney, Guardianships, Probate and Estate Administration, Trusts, Minor Children, etc. are set forth in the Title 20 – the Pennsylvania Probate, Estates, and Fiduciaries (PEF) Code. There are numerous specific rules and technical requirements regarding how Estate Planning documents are adopted, and how Estates are administered. If someone is a legal resident of Pennsylvania (i.e. they own a home, they are registered to vote, they pay taxes at that address) Pennsylvania's PEF Code will apply to that Estate and the County Court of Common Pleas will have jurisdiction. This applies even if a person who is deceased has moved to a nursing home, perhaps out-of-state, so long as the official residency remains in Pennsylvania.
I LIVE OUTSIDE OF PENNSYLVANIA, BUT MY PARENT PASSED AWAY IN PENNSYLVANIA. DO I HAVE TO PAY INHERITANCE TAXES TO MY OWN HOME STATE OR TO PENNSYLVANIA?
It is unlikely that any inheritance tax must be paid in your home state, but laws vary from state to state. If any property is transferred and inherited (both probate and non-probate assets other than life insurance), these amounts must be reported to the Pennsylvania Department of Revenue, and an Inheritance Tax Return must be filed to show the proper tax calculation and tax payment.
WHAT IF MY PARENT HAD A TRUST AND I AM INHERITING VIA THE FINAL WIND-UP AND DISTRIBUTION OF A TRUST, DOES THE TRUST MAKE ALL OF THESE TAXES EXEMPT?
No. If someone is receiving an inheritance, regardless if through a Trust or a Will (Probate Estate), the same tax rates, rules, and tax returns must be filed.
CAN ANY PERSON PREPARE THE TAX RETURN AND FILE THE PAPERWORK FOR PROBATE?
This is generally not a good idea. Some CPA and accounting firms indicate that they can prepare the Inheritance Tax Return. However, they cannot sign this document and submit it to Court, only an attorney or Executor can sign this document. CPAs are not authorized to practice law and it is a violation if they indicate otherwise.
WHAT MAKES THE LAW OFFICES OF SCOTT G. HOH DIFFERENT IN PROVIDING AN OUTSTANDING CUSTOMER EXPERIENCE IN PROBATE?
Our golden rule is, if the person who passed away was our own family member, how would we expect to be treated. It is important to work with an experienced Probate law firm, and for that firm to explain the steps in the process and costs at the onset. We send a monthly status letter to all Estate Administration clients, and welcome questions and dialogue with our clients to answer questions, provide education and guidance, and diligently speed things forward. We also normally charge a legal fee that is less than the recommended fee schedule set forth by the Courts. Through all of these steps, we are committed to frequent communication and creating a pleasant and efficient process, so that our clients know they are receiving first-class, affordable, responsive, and outstanding professional services.
MY SPOUSE HAS PASSED AWAY, IS IT NECESSARY TO FILE FOR PROBATE IF I AM STILL ALIVE?
Frequently, it is not necessary to file for probate upon the death of the first spouse. In Pennsylvania, the inheritance tax rate from spouse to spouse is 0%, so if the spouse's entire estate is given to the surviving spouse, there are usually no tax consequences and no need to file an Inheritance Tax Return. However, if anyone other than a spouse will inherit property, then it is most likely that an Estate must be raised.