What does an executor do?

After the death of a family member or friend, you find that the deceased’s will names you as the executor of the estate.

What does that mean and what do you need to do?

An executor has a number of important duties. The main ones are to collect and safeguard the assets of the deceased person’s estate; pay debts and taxes; and distribute what’s left to the beneficiaries of the estate.

The first step is to gain official recognition as the executor. In Pennsylvania, that usually means filing the appropriate papers at the Register of Wills in the county where the deceased resided. The Register then issues you a “short certificate” (usually multiple originals) attesting to your authority as the executor.

Using your short certificate, you may sell or liquidate assets and open an estate checking account. You can use funds of the estate to pay bills (after determining that they are legitimate) and taxes.

You can later settle the estate by accounting for what you took in, what you paid out, and what remains. In Pennsylvania, you may file a formal accounting with the Orphans’ Court of the county where you opened the estate and (once any objections are resolved) receive an official decree from the court approving your actions and authorizing distributions to beneficiaries. Or you may file an estate settlement agreement signed by all the beneficiaries.

Once the estate is finalized, the beneficiaries receive whatever they are due.

In a nutshell, that is what it means to serve as the executor of an estate. This entire process is called “probate.”

Keep in mind, however, that there are many more details than could ever fit into a single blog post. Most people don’t know where to begin to file the right papers, and are uninformed about the various duties, deadlines, and responsibilities involved. You don’t want to run afoul of tax laws or probate requirements and suffer the consequences.

My best advice is therefore to consult experienced legal counsel to help you through the probate process. Legal fees are generally tax deductible, and shared by all beneficiaries. Serving as an executor can be a headache, but much less so with the right help.

Why and how to advertise an estate (or trust) administration

You may have noticed legal notices in the newspaper, mixed in with the classified ads, as you turned pages looking for the comics.

If you look closely, you will often see advertisements announcing that the Register of Wills has opened an estate in the name of someone recently deceased, and has appointed an executor to administer the estate.

Why do these ads run, and how is estate advertising done properly?

Pennsylvania law requires the executor to advertise the estate to “request all persons having claims against the estate of the decedent to make known the same to [the executor] or his attorney, and all persons indebted to the decedent to make payment to [the executor] without delay.” (20 Pa. C.S.A. § 3162.)

Advertisement must be made immediately after the estate is opened in a newspaper of general circulation “at or near the place where the decedent resided” and also in the legal periodical designated by the court for publication of such notices. The ad must run once a week for three successive weeks, and must contain the language described in the previous paragraph, along with the name and address of the executor.

The Register of Wills in the county where the estate was opened can help you determine which publications to use. Call the appropriate newspaper and legal periodical for assistance in placing an ad with the required language.

Advertising the estate serves at least two important purposes. First, it allows any potential creditors or claimants one year to makes claims known to the executor. After a year, claims against the estate will usually not be honored, and the executor may distribute the assets of the estate without fear of claims from unknown sources.

Second, advertisement starts the clock ticking on the allowable time for closing the estate. By law, an executor may file an account of the estate administration with the court “after four months from the first complete advertisement” of the estate.

In some cases, there is no probate estate filed with the Register of Wills because all assets of the decedent pass to beneficiaries by means of a revocable trust. The trustee of such a trust may also advertise in the same manner and thereby foreclose claims made more than a year after advertisement. (20 Pa. C.S.A. § 7755.)


Same-Sex Marriages Recognized for Inheritance and Transfer Tax Purposes

Wedding cakeCouples in same-sex marriages are entitled to the same favorable tax treatment as other married couples, for purposes of inheritance and transfer tax in Pennsylvania, according to a bulletin issued by the Department of Revenue.

The bulletin implements last year’s court decision (Whitewood v. Wolf) that legalized same-sex marriages in the state.

Under Pennsylvania’s inheritance tax, a surviving spouse inherits at the rate of 0%. Prior to the recognition of same-sex marriage, a spouse of the same gender would have paid inheritance tax at the rate of 15%.

Similarly, natural and adopted children inherit at the rate of 4.5%. The bulletin provides that “a natural or adopted child of any individual and that individual’s spouse shall be considered a lineal heir for purpose of establishing tax rates.” They, too, would have paid a rate of 15% before the change.

The bulletin also recognizes same-sex couples and their children for exemption from real estate transfer tax.

Those who have paid taxes at the rates applicable before the change can apply for a refund, but certain time limits apply.

Attorney fees in probate: how do Pennsylvania lawyers charge?

atty-feesFor many reasons, executors are well advised to use legal counsel to help them navigate through the probate process, look for tax savings, and make sure everything is done properly.

How lawyers charge varies from state to state. This blog post explains the rules governing how Pennsylvania lawyers can charge for their services.

Pennsylvania rules

Under Pennsylvania law, an attorney fee must be “fair and reasonable.” According to Pennsylvania’s Supreme Court:

“What is a fair and reasonable fee is sometimes a delicate, and at times a difficult question. The facts and factors to be taken into consideration in determining the fee or compensation payable to an attorney include: the amount of work performed; the character of the services rendered; the difficulty of the problems involved; the importance of the litigation; the amount of money or value of the property in question; the degree of responsibility incurred; whether the fund involved was ‘created’ by the attorney; the professional skill and standing of the attorney in his profession; the results he was able to obtain; the ability of the client to pay a reasonable fee for the services rendered; and, very importantly, the amount of money or the value of the property in question.” (LaRocca Estate, 431 Pa. 542, 546, 246 A.2d 337, 339 (1968).)

In the context of probate fees, a reference often cited for calculation of reasonable attorney fees comes from a 1983 case called the Johnson Estate, in which an Orphans’ Court judge provided the following schedule:

The Johnson Estate

The Johnson Estate

Following that schedule would result in fees in these amounts for estates of various sizes:

Probate-Fee_chartHowever, billing according to the Johnson Estate chart is not the only alternative. Some lawyers will charge a certain fixed percentage (say 5%), or quote a flat fee tailored the individual estate.

Yet another alternative is hourly billing. An attorney can simply charge for the time expended on the matter, perhaps with different rates for attorney and paralegal time. The resulting fee could be less than a fee charged according to the value of the estate, but it could also be higher, depending on the demands of the estate.

Sykes Elder Law approach

Every professional needs to be compensated fairly, and we’re no different.

But we have always believed that our fee charged for estate work should not be higher simply because the estate contains more assets. For example, if a person dies owning a house, an IRA, an investment account, and a checking and savings account at a bank, it takes us about the same amount to administer the estate, whether it totals $600,000 or $2.3 million.

If we charged according to the Johnson Estate model, the heirs of the $2.3 million estate would pay $36,500 more in fees ($58,250 minus $21,759) than the heirs of the $600,000 estate, for probably the same amount of work.

Granted, there are some reasons why an estate with more assets may require more work. If it’s large enough, it could involve the filing of a federal estate tax return. If the estate generates more income while it is being settled, the estate tax return will take more time. If the assets are numerous, spread out over many accounts, or involve ongoing business concerns, it will take more time to get the estate ready for distribution to heirs.

In general, though, our experience is that an hourly rate results in cost savings to the client in most cases.

Some people like to know up front what the fee will be, without the variability that comes with charging according to the time expended. For those clients, we are willing to quote a flat fee that is charged throughout the course of the engagement, as it is earned. The flat fee is based on our estimate of what it will take to settle the estate, and for that reason (especially on larger estates) it generally compares favorably to charging a percentage.

If you would like to consult with us about an estate you need to administer, feel free to call us to discuss your situation, and find out how we can settle the estate professionally for a reasonable fee.

Courts extend estate tax, pension plan rights to same-sex couples

In recent months, courts have extended important elder rights to same-sex married couples.

Estate tax

Last summer’s landmark ruling by the U.S. Supreme Court in United States v. Windsor struck down a provision of federal law that excluded same-sex couples from the definitions of “marriage” and “spouse.”

Edith Windsor sued to obtain a refund of federal estate tax she had paid after the death of her spouse, Thea Spyer. Edith and Thea married in Canada in 2007, and their marriage was recognized by the state of New York, where they resided. Edith claimed she was entitled to a refund because of the exemption from federal estate tax available to surviving spouses, but the IRS denied the refund.

The Supreme Court ruled it was unconstitutional for the law to exclude same-sex couples from the definition of “marriage.” “The federal statute is invalid, for no legitimate purpose overcomes the purpose and effect to disparage and to injure those whom the State, by its marriage laws, sought to protect in personhood and dignity,” the Court held. “By seeking to displace this protection and treating those persons as living in marriages less respected than others, the federal statute is in violation of the Fifth Amendment.”

As a result, Edith was entitled to an estate tax refund of $363,053.

Pension plan

Following the Windsor ruling, a federal court in Pennsylvania ruled in favor of another same-sex surviving spouse who sought of the death benefits from her deceased wife’s pension plan.

Under the terms of pension plan, death benefits were payable to the surviving spouse unless she had signed a written waiver. Jean Tobits, who was considered the spouse of Sarah Farley under Illinois law where they lived, applied to receive Sarah’s pension plan death benefits after Sarah died from cancer in 2010.

The Pennsylvania-based law firm for whom Sarah worked also received a claim for death benefits from Sarah’s parents. The firm asked the court to resolve the competing claims.

Following the Windsor decision, the court held that Jean met the definition of a “spouse” under applicable federal law, since her marriage to Sarah was recognized as valid by the state where they lived. Since Jean had never signed a waiver, she was entitled by law to receive the death benefits of Sarah’s pension plan. (Cozen O’Connor, P.C. v. Tobits, et al.)

Pennsylvania status

Pennsylvania now recognizes same-sex marriages, under the 2014 case of Whitewood v. Wolf. Among other benefits, this change in the law affords more favorable treatment to same-sex couples for purposes of inheritance tax and real estate transfer tax. For more information on this issue, click here.