REBECCA A. HOBBS
Rebecca A. Hobbs, Esq., is an associate attorney with the law firm O’Donnell, Weiss & Mattei, P.C. Ms. Hobbs focuses her practice in elder law, special needs planning, estate planning, estate and trust administration, and Veteran’s benefits. Ms. Hobbs is accredited as a United States Veterans Administration Attorney. She is also a member of the National Academy of Elder Law Attorneys (NAELA) and the Pennsylvania Association of Elder Law Attorneys (PAELA). She is an active member of the Montgomery County Bar Association and the Pennsylvania Bar Association (PBA). She serves on the PBA Charitable Organizations Committee and the PBA Legal Services to Persons with Disabilities Committee. She is also a graduate of the Tri-County Chamber of Commerce Leadership Class of 2013-2014. As an elder law attorney Ms. Hobbs is able to provide exceptional legal guidance while also understanding the sensitivity and compassion needed for assisting families in a time of crisis. Ms. Hobbs resides in Phoenixville with her husband and two children.
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The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.
DEATH & TAXES: THREE THINGS YOU NEED TO KNOW
1. As a Pennsylvania resident, what “death taxes” should you be concerned with?
The death tax that will have an effect on most estates in Pennsylvania regardless of size is the Pennsylvania Inheritance Tax. Pennsylvania was the first state to impose a tax on the privilege of receiving property from a decedent, doing so in 1826. Unlike some states that have an exemption amount that applies to inheritance tax, Pennsylvania's inheritance tax begins at $1.00. There is no standard exemption amount like the Federal Estate Tax.
A very common misconception is that avoiding probate avoids Pennsylvania Inheritance Tax. This is simply not true. Whether an asset is probate or non-probate has no bearing on whether the asset is subject to Pennsylvania Inheritance Tax. An exemption from Pennsylvania Inheritance Tax does exist for property transferred to charitable organizations and government entities. When determining the amount of Pennsylvania Inheritance Tax due, there are four (4) different inheritance tax rates that may be applied, depending upon the relationship to the decedent (0%, 4.5%, 12% and 15%). Spouses are taxed at 0%, parents, children, step-children, grandchildren, etc., are taxed at 4.5%, siblings are taxed at 12%, and all other classes of beneficiaries are taxed at 15% (this includes nieces and nephews).
The tax most commonly referred to after the Pennsylvania Inheritance Tax when discussing death taxes is the Federal Estate Tax. However, given the high exemption amount available when calculating Federal Estate Tax, this tax will have an effect on the least amount of estates. This tax only applies when the value of the decedent’s gross Federal Estate exceeds $5,340,000.00 for an individual with a date of death in 2014.
Other taxes that will have an impact on your estate include Federal and State Income tax. A fiduciary income tax return will be filed by your Executor. The tax return will report and pay tax on any income earned by the estate after the date of the decedent’s death. Additionally, to the extent that a person who passes away in Pennsylvania owns property in other states, they may be subject to death taxes in those jurisdictions which may include other states or countries.
2. Does my Last Will and Testament control the distribution of all of my assets?
Many people believe that their Last Will and Testament controls the distribution of all assets they own at the time of their death. This is another common misconception. The only assets whereby the distribution is controlled by the decedent’s Last Will and Testament are probate assets the decedent owneds at the time of his or her death. A probate asset is property solely owned by the decedent as well as assets owned by the decedent and one or more persons as tenants in common.
Your Last Will and Testament has no control over the distribution of non-probate assets. Instead, non-probate assets will pass by operation of law, by contract, or in accordance with the transfer on death or payable upon death provision. Property passing by operation of law would include a checking account titled jointly with the right of survivorship, as well as real estate that is owned as tenants by the entireties or jointly owned with the right of survivorship. When a joint tenant dies, the jointly owned property passes automatically to the surviving joint tenants. Non-probate assets passing by contractual arrangement include IRAs, 401(k)s, or other retirement plans which provide for beneficiary designation. These assets will pass in accordance with the beneficiary designation. The same applies for life insurance, annuities, and other accounts that have a beneficiary designation. Assets held in a Revocable Living Trust or other Trust will also pass in accordance to the Trust agreement, which is analogous to a contractual agreement.
Any estate plan should take into consideration all of these forms of ownership and make sure that your Testamentary plan coordinates with your contractual Arrangements and beneficiary designations
3. How do you avoid Probate in Pennsylvania?
Many people have the estate planning goal to avoid probate. However, it is important to understand that in Pennsylvania, probate entails relatively moderate costs and is much less time consuming compared to many other states. Pennsylvania law allows an Executor named in a decedent’s Last Will and Testament the flexibility to make most decisions without the involvement of the court. It is important to consult with a trusted attorney knowledgeable in estate planning. Your attorney can guide you through the advantages and disadvantages of the probate process.
Contact OWM Law today for an estate planning or estate administration consultation. If you would care to discuss the above in detail, please call me at 610-323-2800 or email me at email@example.com. Also, please watch OWM's October 2014 Legal Talk program regarding Death and Taxes: How to Plan for Both on our website here.
Kathleen M. Martin, Esq., speaking at Owen J. Roberts High School, Pottstown, PA on 10/15/14 entitled "Elder Law Issues," and at Owen J. Roberts High School, Pottstown, PA on 10/29/14 entitled "Beyond the Simple Will" (contact Chester County Night School at 610-692-1964 or online at www.chestercountynightschool.org).
Kathleen M. Martin, Esq., speaking for the Threshold Group, at a workshop entitled "Transforming the Culture Around Dying" at Beaver Farms, 551 West Seven Stars Road, Phoenixville, PA on 10/18/14 (9:15a.m.-4:30p.m.) (contact Christina Acree at firstname.lastname@example.org).
David A. Megay, Esq., speaking at Chester County Night School Seminar (6:30p.m.-8:30p.m.) at Owen J. Roberts High School, Pottstown, PA, on 10/29/14 entitled "Buying and Selling Real Estate in PA" (contact Chester County Night School at 610-692-1964 or online at www.chestercountynightschool.org).
David A. Megay, Esq. speaking at a SCORE Business Planning Seminar on 10/30/14 at 7:00 p.m., at New York Plaza, Suite 102, 244 High St., Pottstown, PA (contact SCORE at 610-327-2673).
Watch Legal Talk, brought to you by OWM, on PCTV, Tuesdays at 8:30 on Channel 28, and Thursdays at 9:30 p.m. on Channel 98, or on our website here.