Estate Administration & Probate

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Estate Administration & Probate

Dealing with the death of a loved one is one is one of the most difficult things a family will go through.  Working through the probate process can add a layer of challenges with legal hoops, dealing with financial institutions, and figuring out tax implications.

What is Probate?

Probate is the legal process that allows a person’s stuff to transfer to their family or loved ones after they die.

The probate process operates through the courts in Pennsylvania.  A person is appointed as the estate’s representative and is empowered to manage the person’s assets, debts, and other affairs (their estate).  This person is then obligated to gather all of the person’s assets, pay their final expenses and debts, pay the estate and inheritance taxes, and distribute remaining assets to the person’s family or beneficiaries.

The Estate Administration Process Covers a Wide Range of Tasks, Including:

  • Validating the person’s Will
  • Locating and gathering assets
  • Selling assets
  • Paying debts
  • Communicating with heirs and beneficiaries
  • Paying inheritance and estate taxes
  • Accounting for all estate assets and expenses
  • Distributing funds to the beneficiaries

Who gets a person’s stuff after they die?

Who gets your property after you die in Pennsylvania?  There are two main ways that will determine how a person’s assets are distributed after they die:  (1) A will (or trust), signed by the individual before they die which will name an executor and list the people who will inherit there property and in what amounts; or (2) through Pennsylvania intestacy laws.  Each state has enacted an intestate succession law to address this issue. These laws are essentially a default estate plan for people who don’t create their own.  If there is no Will, these laws will determine how all of the deceased’s probate property will be distributed. Here is a link to Pennsylvania’s statute for reference.

To answer the question “who will get a person’s stuff after they die?” We have to first determine if that person had a will, and then determine which family members survived them.  The Pennsylvania Estates and Fiduciaries Code (the statute the governs estates) can be very complicated when it comes to determining who will inherit after an individual dies.  Reviewing the facts with an estate administration attorney will help determine the heirs so that the administrator can properly distribute the assets.

Do I Need to Hire a Lawyer to Help With Probate?

Often a child or family member of an individual who has recently passed away will consider tackling the estate administration process without hiring an estate attorney. Whether it is the cost of retaining counsel, or the “do-it-yourself” personality, some individuals believe that hiring a lawyer is an unnecessary expense which can easily be avoided. The truth is that there is no legal requirement to hire a lawyer, and there are many individuals who have successfully navigated the probate process without counsel. All too often, however, an executor will find themselves stuck, or worse yet, trying to correct a mistake that could leave them personally financially liable.

The personal representative is a fiduciary, meaning that they are held to the highest standards of loyalty and care that the law provides. Even in the most friendly and simple of estates, a personal representative can be faced with serious decisions regarding estate assets and debts. If the personal representative fails to comply with Pennsylvania law, or is negligent in the administration, they can be held personally liable.

There are some common elements to estate administration which are often overlooked by unrepresented individuals, which can have serious consequences.

  1. Failing to adhere to the proper steps, practices, and procedures.

Administering an estate in Pennsylvania requires the following of very specific procedures which must be adhered to regardless of the size or type of estate. Missing a step or completing something improperly can be a serious problem. Failing to properly advertise the estate could lead to creditors filing claims long after the administration process has been completed, failing to check for a claim with the Department of Human Services, or failing to properly notify all beneficiaries are also common missteps.

  1. Mistakes on the Inheritance Tax Return.

One of the largest expenses in Pennsylvania estate administration is often the Inheritance tax which ranges from 4.5% to 15%. Missing deductions, missing the pre-payment discount, or overstating the tax due can cost thousands in unnecessary expenses.

  1. Mismanagement of Assets.

As the personal representative of the estate, the executor is required to marshal, secure and protect all estate assets including assets which may increase or decrease in value such as real estate or stocks. Failing to check with an insurance carrier on a now vacant home, or failing to immediately liquidate a stock before it potentially loses value, can lead to personal liability for negligence.

  1. Improper Accounting

The personal representative is required to create an accounting of all estate assets setting for the value and listing all administration expenses and valid debts of the decedent. If the accounting is not properly prepared or is incorrect, a beneficiary may raise the issue with the probate court. If the executor lacks the proper documentation for assets or expenses, he or she could face a claim for damages.

  1. Failing to Secure Releases or a Family Settlement Agreement from all Beneficiaries.

Because the personal representative is potentially liable, it is essential that the beneficiaries release the executor from any liability after they have been apprised of the final estate accounting. This will protect the personal representative in the future if one of the beneficiaries decides they were unsatisfied with any part of the administration of the estate.

While the do-it-yourself method can be tempting to save money, the savings in legal fees is often outweighed by the stress, potential liability, and the common mistakes and pitfalls which an executor may run in to.

How much will an Estate Administration Attorney Cost?

In Pennsylvania, the attorney’s fees are an expense of the estate and should be paid out of estate funds (if there are any funds in the estate). Lawyers may charge hourly, flat rate, or a percentage of the estate, but whatever the fee, the Pennsylvania courts have said that these fees must be “reasonable.”

Acting as executor can be a daunting task, especially if you have never had experience with the probate process.  The executor must quickly become familiar with the state laws and the responsibilities required to complete the probate process. It’s a heavy burden to take on alone.  Fortunately an experienced probate attorney can take on the bulk of responsibilities and guide the executor through the process.

Pennsylvania courts strongly encourage Executors to hire a probate attorney. An experienced Pennsylvania probate attorney will be able to guide the executor through the probate process, takes responsibility for most of the difficult tasks, and will help to ensure the executor completes all of their responsibilities.

How do I know if the fees are reasonable?

There is no law or regulation in Pennsylvania which set a standard for what are “fair and reasonable” fees.  Most attorneys abide by the fee schedule created by Judge Wood in the Johnson Estate, created in 1983.

The Johnson Estate executor fee schedule (included below) is a guide many courts have referenced and used as a guide since its creation 30 years ago. Rather then balancing countless factors, many judges first examine how the claimed fee compares to the schedule in Johnson. This schedule therefore serves as the most intelligible answer to an appropriate executor’s fee in Pennsylvania.

This Schedule is only a starting point.  When consulting with an attorney the executor should make sure the attorney is clear up front about the fee involved and the justification for that fee.  Charging a percentage without justification, even if it follows the guidelines of the Johnson estate, may not be acceptable.  For example, if an estate included a 2 million dollar life insurance policy, but no other assets, a $20,000 fee might be excessive.  As another example a $500,000 estate which includes multiple pieces of real estate, and a closely held business which must be sold, may require more work than a 3% fee would cover.

Hourly billing is the traditional method for attorneys to charge for their services.  This may seem like the best option up front, but all of the phone calls, emails, and paperwork involved in an estate can quickly add up.  Often banks or insurance companies require several phone calls and emails just to secure the payment of one asset.  Realtors or accountants may make daily or weekly phone calls.  A small estate can quickly rack up thousands of dollars in hourly billing.  Percentage or flat rate billing allows the executor to have a concrete idea of what the fees will be up front.

Whatever fee arrangement the attorney and executor agree to the engagement letter should detail what is expected of the executor and what is expected of the attorney.  If the fee is a percentage or flat rate, it should be calculated based on the size of the estate, responsibility incurred by the attorney, the complexity of the estate and experience of the attorney. 

Johnson Estate Fee Schedule

 

Min. Marginal Value ($) Max Marginal Value ($) % Fee Allowed Marginal Fee Total Fee
00.01 25,000.00 @ 7% $ 1,750.00 $1,750.00
25,000.01 50,000.00 @ 6% $ 1,500.00 $3,250.00
50,000.01 100,000.00 @ 5% $ 2,500.00 $5,750.00
100,000.01 200,000.00 @ 4% $ 4,000.00 $9,750.00
200,000.01 1,000,000.00 @ 3% $ 24,000.00 $33,750.00
1,000,000.01 2,000,000.00 @2% $ 20,000.00 $53,750.00
2,000,000.01 3,000,000.00 @ 1½% $ 15,000.00 $68,750.00
3,000,000.01 4,000,000.00 @ 1% $ 10,000.00 $78,750.00
4,000,000.01 5,000,000.00 @ ½% $ 5,000.00 $83,750.00

 

½% Regular Commission P.O.D. Bonds and Trust Funds 3½% Transfer Joint Accounts 3½% Assets Which Are Taxable at One Half Value
1% Non-Probate Assets up to $1,000,000 1% Non-Probate Assets Joint Accounts Fully Taxable: Full Commission
Estate Administration Services

There are dozens of tasks involved in the estate administration process.  We can help you along the way and share some of the burden that comes with being named as an executor.  Everything from completing and filing forms with the County and State, to drafting and filing the Inheritance Tax Return and preparing an accounting for the beneficiaries.

Trust administration

Named as Trustee over someone else’s trust?  Our firm can represent you as the trustee and make sure you manage the trust properly and protect you from any potential liability.

For more information on potential risks when acting as trustee, check out our blog posts.

 

Inheritance Tax return preparation

If you’ve already started the probate process and need assistance with filing the inheritance tax return and closing out the estate, our firm is well equipped to step in and help you wrap up the probate process.

unclaimed property

Have you run an unclaimed property search?  Finding unclaimed property is an often overlooked step in the estate administration process. We can help you run the search and claim any unclaimed property.

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