Glossary of Estate Terms
- Accounting – One way to close an estate in PA is to file a list of the estate assets and expenses (called “an accounting”) with the local county Orphans’ Court. The accounting is accompanied by a request for an audit date. If any objections to the accounting are properly filed, the Orphans’ Court judge will set a date to hear the objections. If there are no objections, the personal representative is allowed to file a Petition for Adjudication, a legal document that requests the right to make all distributions and to pay all of the remaining bills. Once the judge approves the Petition for Adjudication, the personal representative may make all of the distributions and payments and then close the estate.
- Administrator – A male who has been appointed by a court to take charge of the estate of a decedent, but who was not appointed as a result of being named in the decedent’s Will.
- Administratrix – A female who has been appointed by a court to take charge of the estate of a decedent, but who was not appointed as a result of being named in the decedent’s Will.
- Death Certificate – A document issued by a medical practitioner certifying the deceased state of a person or a document issued by a person such as a Registrar of Vital Statistics that declares the date, location and cause of a person’s death.
- Elective Share – A surviving spouse may choose between taking that which he or she is given via the deceased spouse’s will OR taking a statutorily prescribed share of the estate (called an “elective share”). Usually the living spouse makes such an election if the deceased spouse’s Will leaves the living spouse less than he or she would have received under the present Pennsylvania law (which is an elective right to take one-third of the deceased spouse’s estate). The surviving spouse must actually take certain stated steps in order to claim the elective share – it is not done automatically.
- Estate Account –A bank account in which all of the decedent’s money, whether from existing bank accounts or from the sale of assets such as stock or the decedent’s home, is held. Usually the personal representative or the attorney for the estate deposits the assets into the estate account, writes checks out of the account to pay the estate bills and ultimately, distributes the money that remains according to the provisions of the will.
- Estate Planning Documents – In Pennsylvania these usually consist of a Last Will and Testament, Durable Power of Attorney, Health Care Power of Attorney and Advance Health Care Directive (which is usually known as a “Living Will.”)
- Estate Tax – The federal government imposes an estate tax on the transfer of the “taxable estate” of a decedent, if the value of the estate is more than the exempted amount (the exempted amount is currently $5,120,000, but the amount has varied widely over the past decade). The taxable estate for federal government purposes is not the same as the probate estate or even the nonprobate estate for Pennsylvania purposes. For example, the payment of certain life insurance benefits to named beneficiaries may be taxable for federal purposes, but not for Pennsylvania purposes. The estate tax is part of the Unified Gift and Estate Tax system in the United States.
- Executor – A male who is appointed by the maker of a Will (called a “testator” or “testatrix”) to gather the assets, pay the debts and ultimately, disburse the balance of the estate assets to the heirs of the Will.
- Executrix – A female who is appointed by the maker of a Will (called a “testator” or “testatrix”) to gather the assets, pay the debts and ultimately, disburse the balance of the assets to the heirs of the Will.
- Family Exemption – Pennsylvania law allows the first $3,500.00 of a decedent’s estate to be exempt from all inheritance tax but the exemption may only be claimed by a surviving spouse or family member living with the deceased in Pennsylvania at death.
- Family Settlement Agreement – This is another way to close a Pennsylvania estate, a more informal way than the Accounting set forth above. The personal representative may choose to prepare a Family Settlement Agreement instead of preparing an Accounting and filing a Petition for Adjudication. A Family Settlement Agreement is often the easier way to close an estate in Pennsylvania because if the heirs and personal representative of the estate all agree, a contract can be prepared detailing all of the distributions and payments that have been made in the estate. This is then binding on the parties who have signed it (but not on potential creditors such as the Pennsylvania Department of Revenue).
- Fiduciary Income tax Return – Income that the estate earns after death must be reported to the taxing authorities (IRS via form 1041 and PA Department of Revenue via form 41) until the estate is closed. By filing this, beneficiaries are often able to claim estate-related deductions on their personal income tax returns, which in turn saves them personal taxes.
- Guardian – When a person is considered an “Incapacitated Person” under Pennsylvania law, a judge of the Court of Common Pleas of the county where the person lives may appoint a guardian of the person (to decide where the person should live, etc.), a guardian of the estate (to handle the person’s finances) or a plenary guardian (in effect, the same person functions both as the guardian of the person and of the person’s estate). A common way to avoid a guardianship is to execute a Power of Attorney during competency.
- Incapacitated Person – Pennsylvania law defines an incapacitated person as follows:
Adults whose abilities to receive and evaluate information effectively and
communicate decisions in any way are impaired to such a significant extent
that they are partially or totally unable to manage their financial resources
or to meet essential requirements for their physical health and safety.
If someone is incapacitated, a guardian is usually appointed to handle that individual’s personal and financial needs.
- Inheritance Tax – Pennsylvania applies a flat tax on the value of the decedent’s taxable estate as of the date of death, less certain listed allowable funeral and administrative expenses and debts of the decedent. Although there is no inheritance tax levied on transfers to a spouse, transfers to grandparents, parents, or lineal descendants are taxed at 4.5% and those to siblings are taxed at 12%. All other transfers are taxed at 15% (except to certain types of charities, which usually are tax-free). Some assets are specifically exempted from inheritance tax, including life insurance proceeds paid to a named beneficiary.
- Insolvent Estate – If the assets of the estate are not sufficient to pay all of the debts, Pennyslvania law provides for the following priority of payment:
- The costs of administration (e.g., filing fees, legal fees, accounting fees, and the compensation of the executor or administrator).
- The family exemption (a payment of $3,500 to the surviving spouse, or children or parents of the decedent residing in the same household with the decedent).
- The costs of funeral and burial, and for medicines and medical care within six months of death, and for services by any employees within six months of death.
- The cost of a gravemarker.
- Rent owed for the decedent’s residence for the last six months before death.
- All other debts and claims.
Claims of the federal government for taxes owed may have priority over other debts because of liens created by federal law.
If all of the costs and debts having priority have been paid, and there is not enough money to pay the last group, # 6 above, then those “other debts and claims” are paid proportionately from the balance.
- Intestacy Law – Pennsylvania allocates the estate of a person who dies without having made a Will according to 20 Pa.C.S.A. § 2101 – 2103. Basically, the spouse gets the first $30,000 and half of the rest of a decedent’s estate and the parties’ children get the balance (at age 18). If there are no children, then to parents, grandparents, uncles, aunts, and the uncles’ and aunts’ children and grandchildren. If there are no such relatives living, then the Commonwealth of Pennsylvania is entitled to the estate.
- Intestate – When a person dies without having made a valid Will or other binding declaration that could be seen as a Will substitute.
- Inventory – A list of the estate assets which is filed with the Register of Wills office. Each county has its own form on which the assets are listed.
- Orphans’ Court – This court usually has the power to handle matters involving wills, estates, guardianship of minors, etc.
- Personal Property – Assets that you own that are other than real estate, land or buildings. It is property that is not affixed permanently to one location. One could view personal property as most everything in a house that would fall out if you turned the house upside down and shook it. Examples of personal property include photographs, jewelry, vehicles, furniture, boats, collectibles, etc. Personal property is also known as “chattel.”
- Personal Representative – This is a generic term including an executor, executrix, administrator and administratrix.
- Probate – This deals with handling the estate of someone who has died. The probate process begins with a petition or request that the estate be opened and that a person be named to handle the estate administration. If there is a Will, when administering an estate, the first part of the process is to probate the Will by taking the original Will to the Register of Wills office. If the Will is deemed valid, the personal representative will take an oath of office and then receive short certificates to allow him or her to gather the assets, pay the debts and ultimately distribute the decedent’s remaining assets per the Will provisions or the laws of intestacy.
- Real Property – Property that includes land, buildings, and anything affixed to the land which cannot be removed, such as equipment, trailers, parking lots, etc.
- Register of Wills – The official charged with the probate of wills or with the keeping of the records of the probate court.
- Renunciation – If a person who is named in the Will as the executor or executrix or a person who has the right to act as the administrator or administratrix of an estate for a person who died without a Will does not want to serve as the personal representative, he or she may file this signed and notarized document to give up that right to serve. One who signs this does not give up any inheritance rights. An example of a blank form Renunciation is found here.
- Residuary Estate – The remainder of the decedent’s estate after the costs of administration, expenses, debts, etc. have been paid. This is the amount that the personal representative will distribute to the decedent’s heirs.
- Short or Short Certificate – This paper gives the personal representative the official authorization to gain access to the assets of the decedent. The term “short” refers to the size of the document, which used to always be a short piece of paper (although now the certificates are often full-size).
- Specific Bequest – The gift listed in a Will of a specific thing to a specific person. The term includes the gift of a sum of money (e.g., $10,000), an item of personal or real property (e.g., my pearl and diamond necklace or my real property located at 222 Road, City, State) or a well-defined class or kind of property (e.g., all my jewelry).
- Status Report – Reports that are filed by the personal representative with the Register of Wills to advise whether or not the estate is closed, etc. under Pa. O.C. Rule 6.12.
- Tax Identification Number – The Internal Revenue Service issues an “EIN” (“Employer ID Number”) for estates as a way of identifying the estate for tax purposes (instead of using the decedent’s or personal representative’s Social Security number).
- Trust – A relationship where a party (known as the settlor, grantor, donor and/or creator) transfers property (personal and/or real property) to another person (the trustee) who holds that trust property (also called the “corpus”) for the benefit of a third party and/or the settler (called the “beneficiary”). The trustee has the legal title to the trust corpus, and the beneficiary or beneficiaries have equitable title to the corpus. The trustee administers the trust in accordance with the terms of the trust, which include the duties and power of the trustee, when the beneficiaries are entitled to distributions, etc.