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WHOA… it costs a lot to die
One of the first calls a family usually makes after a loved one passes is to their attorney, at which point we begin to explain the process of settling the estate. And the response is unanimous – it costs how much?!?
Among the ever-increasing funeral expenses is the cost to settle the estate, which ranges from 1-7% between the court costs and attorney fees. Then factor in a reasonable executor fee which can be another 5% of the estate’s value. On top of that, depending on the beneficiary’s relationship to the decedent is the Pennsylvania inheritance tax which can be as high as 15%:
Spouse 0%
Children/Grandchildren 4.5%
Siblings 12%
Everyone Else 15%
We also must take into consideration other possible tax consequences – income tax, federal estate tax, plus any debts the decedent owed upon their passing or expenses incurred because of their passing. In addition to the above-listed expenses, if the decedent received governmental benefits from the Commonwealth of Pennsylvania (i.e. Medicaid) they must be reimbursed for benefits paid. Pennsylvania has a priority of creditors list which the Executor must be aware of so that the correct creditors get paid in the correct order.
Settling an estate is time-consuming and can be very complicated. The Executor is a fiduciary under the law who must act in the best interest of the estate and who owes the utmost care while acting. Without a professional walking him/her through the process, there is not only the stress of missing a key step, but more importantly, paying more than what is legally required. And if the fiduciary breaches his/her duty they may face personal financial liability. Add to that the complexities and often strained dynamics of a blended family, second marriage and discord amongst siblings. Ornery beneficiaries don’t help matters either. We often receive inquiries asking when they’ll receive their share. But probate can be lengthy, averaging over a year. And, if there are creditors, we must factor in an additional court process concerning the audit of the estate. If a beneficiary contests, the Estate faces the time and cost associated with defending the claim too.
As estate and tax professionals, we assist our clients with all the necessary administrative steps and tax returns helping them reduce their stress and the applicable tax due with our expertise. What costs are permitted deductions? Which creditors get paid before others? Does an Executor pay tax on their commission? All of these are factors in reducing the tax owed by the estate. And if we are proactive, the estate may receive an additional 5% discount if the return is filed within a timely manner.
The passing of a loved one is hard enough without having to worry about the settlement of their estate. We ask that everyone allows their family to rejoice in their memory rather than struggle with locating documents, fumbling through files and dealing with family turmoil. The proper plan can allow them time to grieve and reduces the likelihood that your family will be fractured from your procrastination.
