Lessons For Executor – What To Do Next
If you are appointed executor of your parent’s estate, others in the family – usually brothers and sisters – might think you were placed in a favored position. After listening to several newly appointed executors and after having served in that capacity myself more than once I realize the work involved can be more than what was expected initially. Also your consensus building skills can come in handy when resolving disputes.
Your appointment began when you were sworn in to “well and faithfully execute the estate according to law.” This means you follow both the Will, if there is one, and the law in all cases. Even if you believed the distribution should have been described differently, you need to follow both the Will and the law. Where the Will is unclear or if the Will and the law (in Pennsylvania known as the Probate, Estates and Fiduciary Code – PEF Code for short) conflict it might be necessary to file in court (known as Orphans Court in Pennsylvania) to resolve the differences but this is not common. In most cases you at least know what you should do, even if the results do not follow your preconceived notions. To resolve a situation where, for instance, family members believe one or more individuals should have received more, I advise that the distribution still must be made according to the Will and the law. If family members want, after distribution is made, to assist another family member from their own funds that is then their business.
Other unexpected things can happen. If your parents pass while still owning their residence there are, without doubt, choices to be made. These include but are not limited to whether to put the house up for sale on the market or to make arrangements for a family member to purchase from the estate. Other possibilities might include rental for a period of time with the funds going to the estate, or lease/purchase. Your parent also might have anticipated these issues and stated other dispositions in the Will.
If the terms of the Will provided for a “right of first refusal” for one or more family members that person or persons must first be consulted and given the opportunity to buy from the estate.
Sometimes what happen is there is a dispute regarding the value of an asset. This can affect both the distribution regarding the home and other valuables such as jewelry and antiques. When in doubt the executor should obtain an appraisal from a reputable, well qualified source. Where there is doubt regarding the value of real estate, disputing beneficiaries might each choose an appraiser and a decision might be made by taking the average of the two. The executor’s people skills work here too.
Taxes. There is good news and not so good news regarding taxes when it comes to estates. Property that was titled in the name of the decedent at the time of death and then inherited generally receives what is called a “step up” in basis at death. This means there is no federal tax on the appreciation in value of the property, whether the property is real estate or stocks. There are some exceptions, however. For instance annuities do not receive a “step up.” Also note this issue relates to capital gains taxes. Inheriting IRA’s and 401(k)’s concerns other issues.
For most assets not covered by the ones described, if your parent purchased the property (real estate, for example) for $100,000 and it is now worth $500,000, the federal government does not tax the difference between the $100,000 and the $500,000 on resale of the property. A good elder law/estates attorney can help with the details.
The bad news on taxes is that Pennsylvania has an inheritance tax that applies to virtually all assets except life insurance. Pennsylvania taxes are relevant to inherited Pennsylvania (but not out-of-state) real estate. The amount of inheritance tax depends on the relationship of the recipient to the owner. The rate for children is 4.5%, for spouses 0%, for siblings 12% and for others 15%.
Family Settlement Agreement. The results of your efforts as executor should be memorialized in a Family Settlement Agreement which describe the assets received, the payments made and the final distribution to the parties. A qualified estates/elder law attorney can prepare it for you. The Family Settlement Agreement includes an informal accounting whereby all beneficiaries receive their fair share and sign off on the results.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.