Klenk Law

Executors and Pennsylvania Inheritance Tax in Chester County, PA

Posted on Thu Oct 2, 2014, on Probate and Estate Administration

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?

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.

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.

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.

If anyone has questions about Chester County Probate, feel free to contact our office for a free consultation. Wills, Trusts, and Estates, It’s all we do!


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