From our “Ask a Question” Mailbag: Executors and Pennsylvania Inheritance Tax in Chester County

Most Recently Updated July 7, 2018

“If an executor sells his mother’s Chester County home, does he have to pay the Pennsylvania probate tax before dividing up the sale proceeds with his siblings?”

Executors and Pennsylvania Inheritance Tax in Chester County, PA

Clarification for Executors and Pennsylvania Inheritance Tax in Chester County

First, let’s clarify a few things. In Pennsylvania, the “probate tax” is the Pennsylvania Inheritance Tax. Because the estate is being divided up between the mother’s children, that rate is 4.5% on the date of death value of her entire taxable estate. The taxable estate includes the house.

The executor has broad discretion to decide when to distribute estate assets.

If he decides to make a distribution before paying the Pennsylvania Inheritance Tax, he is making an “At Risk Distribution.” An At Risk Distribution means that the executor is giving the beneficiaries estate assets before paying all creditors. The executor is “At Risk,” because if the assets he keeps in the estate to pay creditors are not enough, he is responsible for the shortfall out of his funds. The executor is “At Risk” of being personally liable.

“At Risk” Distributions

Some executors do not mind making At Risk distributions, as they are sure that the estate’s remaining funds are enough to pay the bills. The wise decision is to have an experienced Chester County Probate Attorney draft an agreement for the other beneficiaries to sign stating that they understand that returning assets is a possibility if a creditor shows up. The best alternative; not distributing funds until the executor knows all the creditors and taxes are satisfied.

What could happen if the Inheritance Tax goes unpaid?

The administrator may face another wrinkle. If the inheritance tax is unpaid, the title company may hold back enough money to pay the estate taxes. They release these funds on proof of tax payment. Every so often a title company will wrongfully keep more money than necessary. They will escrow the entire sales proceeds…collecting the interest for themselves…until he provides them the Department of Revenue release. Retaining excessive funds is incorrect and likely illegal.

Klenk Law has good experience negotiating this with Chester County title companies. We see that title company withholds the correct amount or often no funds at all.

More Probate Questions?

Executors and Pennsylvania Inheritance Tax in Chester County is only part of the overall probate process. By all means, if you wish to learn more, please read my more detailed article, The Probate Process All You Need to Know.

In Conclusion: Executors and Pennsylvania Inheritance Tax in Chester County, PA

I hope that this article was helpful in explaining Executors and Pennsylvania Inheritance Tax in Chester County. Further, I included links to even more detailed information on my website. Therefore, please contact me and let me know how I did. Certainly, your comments and questions are welcome!

Let our Probate Lawyers help walk you through what can be a confusing process. To begin with, call to speak to one of our experienced Probate Attorneys.  By all means, our lawyers are ready to answer your questions. In fact, feel free to contact our office for a free consultation. Ultimately our goal is to make the process as painless as possible!

Wills, Trusts, Probate, and Estate Litigation, It’s All We Do

Peter Klenk, Probate Lawyer