Same-Sex Marriages Recognized for Inheritance and Transfer Tax Purposes

Couples 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.

Pittsburgh Steelers Seat License: Do You Need to Probate?

If a person dies owning a seat license for Pittsburgh Steelers football games, will someone need to open a probate estate to transfer the license?

Yes, according to a number of estate attorneys I have spoken with who have had this issue arise in their practices. According to the official Pittsburgh Steelers website:

“Transfer Resulting From Death Of A Seat License Holder - In addition to all other items required for processing a transfer request, the following requirements must be met: (1) a certified copy of the death certificate of the deceased license holder must be submitted; (2) the Transfer Form must be signed by the Executor or Administrator of the deceased license holder’s estate; and (3) the Executor or Administrator must submit official evidence of his/her capacity. In the case of an Executor, a recently-dated short certificate of Letters Testamentary must be submitted; or, in the case of an Administrator, Letters of Administration, bearing a raised seal.”

Can you avoid probate by owning the seat license jointly with someone else? The Steelers website says no:

“No Joint-Ownership Of Seat Licenses - There shall be no joint-ownership of any seat license. There may only be one license holder for a given seat at any given time.”

However, the seat license may be owned by a corporation or partnership and transferred by the signature of an “authorized official.” A person could also avoid probate by transferring ownership before death.

What is a “self-proved” or “self-proving” will in Pennsylvania?

If you’re the executor of an estate, you want to be able to walk into the register of wills office, present the original will (along with other required materials), get sworn in, obtain the documents you need, and walk out ready to start settling the estate.

A “self-proved” or “self-proving” will is going to help.

If you are doing your estate planning now, make things easier for your executor by signing a will that is self-proved. (I will discuss how shortly.)

Background

To make a valid will in Pennsylvania, you must put it in writing and sign it at the end. If you can only make an “x” or some other mark instead of signing, two witnesses must be present and must also sign their names to the will in your presence. If you can’t sign or even make a mark, you can authorize someone else to sign for you, but again, you must have two witnesses who also sign their names to the will in your presence.

In order for the will to be accepted by the register of wills to open an estate, Pennsylvania law requires that the will be “proved by the oaths or affirmations of two competent witnesses.”

So if you had simply signed your will in front of two witnesses, those witnesses could appear at the register of wills office and swear under oath that they did indeed watch you sign that will. But what an inconvenience for the witnesses!

And what if you signed the will 30 years before you died? Will the witnesses still remember? Are they still alive? Can they be found? If not, can someone else swear that they recognize your signature on the will?

Self-proved will

A self-proved (sometimes called “self-proving”) will solves this problem.

If the will contains certain acknowledgements and affidavits, the register of wills shall accept the will without the need of witnesses to the signature.

Here is an example of an acknowledgement and affidavit that would be acceptable under Pennsylvania law:

When it won’t be accepted

There are three situations in which the register of wills would not accept a self-proved will:

1. When the validity of the will is being contested;

2. When the will is signed by mark; and

3. When the will is signed by someone else (as described above in the first paragraph under Background).

In these situations, you’ll need to have witnesses appear or submit sworn statements.

Execution

Finally, it’s important to remember that to make an effective self-proved will, the document must be executed correctly.

You’re not required to use the services of an attorney, but a qualified attorney can often help you make sure your will is drafted and executed properly.