Probate refers to the process by which a deceased person’s estate is distributed. Assets pass to beneficiaries named in the decedent’s Will or, if there is no Will, to heirs as determined by the law of the State where the decedent lived. In both situations, in Pennsylvania, that process begins at the County Court House in the office of the Register of Wills. The phrase “probating a will” means proving that the document presented as a person’s last will & testament is legitimate and meets the legal requirements for being accepted. Here are some important things to keep in mind when planning distribution of your estate.
Not All Assets Pass Through Probate
IRAs, 401(k) and all other qualified retirement plans pass on death to beneficiaries named in the contract, NOT through probate. Life insurance, annuities, and also securities designated “transferable on death” (TOD), also sometimes called “Payable on Death” (POD), pass to beneficiaries named in the insurance policy or annuity contract and also escape probate. Real estate and personal property co-owned with others as joint tenants with rights of survivorship vests automatically in the surviving co-owners, and, as in the situations above, NOT in accordance with one’s Will. Nor are assets that you transferred into a Trust subject to the probate process. Many estates, more than ever before, hold a substantial amount of these “non-probate” assets.
Taxes
State death taxes vary among different jurisdictions but almost always apply to probate and non-probate assets alike. So, for example, assets in an IRA, annuity or a Trust, or securities designated transferable on death, all draw the same death taxes as those that pass under one’s Will. You do not escape taxes by avoiding probate.
What About “Living Trusts”
You can escape or at least substantially minimize probate by transferring assets to yourself as trustee of a revocable trust in which you are the beneficiary and retain full access to and control over the trust fund. The law refers to these kinds of trusts as “will substitutes” and applies many of the same obligations and liabilities on them as apply to Wills. The same taxes applicable to assets that pass by Will also apply to assets in a living trust. Moreover, the successor trustee who takes over after death for the purpose of distributing the trust estate to the remainder beneficiaries has virtually the same duties and responsibilities as an executor or administrator named in someone’s Will, and incurs comparable attorney fees as does an executor. Stanley Vasiliadis, an attorney with the law firm of Vasiliadis Pappas Associates, notes that “many people have “living trusts” for the wrong reasons and others that should have one don’t.” For more information on why and when not to have a living trust, join Vasiliadis for a one-hour webinar on this topic.
What Papers Will My Executor Need to Gather?
A checklist of documents to gather may include:
- Death certificates
- Final will
- Revocable trust documents
- Contact information for heirs
- Beneficiary designations
- Pre- or post-nuptial agreements
- Previous three years of federal and state income and gift tax returns
- Life insurance policies
- Real estate deeds
- Vehicle titles
- Statements of financial accounts
- Contracts and business agreement documents
- Appraisals for high-value art, collectibles, or jewelry
- Other known assets
- Known debts
- Ongoing bills
- Medical and funeral expenses
Conclusion
Proper estate planning includes careful coordination of the use and management of both probate and non-probate assets. Cooperation among your attorney, accountant and financial advisor facilitates such coordination. Tax consequences must also always be taken into account. The lawyers at Vasiliadis Pappas have extensive experience in representing executors and trustees in connection with the administration and distribution of estates and trusts. If you are named as an executor in a Will or are next-of-kin to a person who died without a Will, call the lawyers at Vasiliadis Pappas to learn how we can help you.