Pennsylvania residents who are planning their estates have a number of ways to avoid having to go through probate. Although the state’s inheritance laws are unusual in that it is one of just six that levies an inheritance tax, avoiding probate in Pennsylvania is mostly a matter of using techniques similar to ones in other states. Joint ownership, payment- and transfer-on-demand accounts, trusts and gifts can all help people transfer their assets as desired after death without having to go through probate. Small estates, as well, can avoid the potentially lengthy, costly and complex probate process. Talk to a financial advisor about your estate plan.
Probate Basics
Probate is a court-supervised legal procedure that occurs after someone dies. The purpose of probate is to validate the will, if there is one, to identify and inventory all the assets in the estate, pay any debts or taxes that need to be paid and, finally, distribute whatever is left to the heirs and beneficiaries.
Probate can be a lengthy process, consuming nine months to two years in Pennsylvania, and also involves costs in the form of fees paid to the attorneys and the court and others. It can expose an estate to public view and may encourage disputes from people who feel the assets are not being distributed properly. For these reasons, probate avoidance is a common feature of estate plans.
Because inheritance laws vary by state, the details of the probate process also vary by state. That means the appropriate ways to avoid probate are at least slightly different in nearly every state, including Pennsylvania.
Probate in Pennsylvania
The primary special feature of Pennsylvania inheritance law is its inheritance tax, which few other states have. This tax is levied on the heirs who receive assets, not on the estate itself, but minimizing or avoiding it can still be a focus of Pennsylvania estate planning.
When it comes to probate, the process in Pennsylvania is also similar to other states. the executor named by the will petitions the county that was the residence of the person who died, asking permission to begin administering the estate. The executor identifies and values estate assets, notifies creditors, files tax returns and, finally, distributes remaining assets to beneficiaries named in the will. If there is no will, the state intestacy laws will determine how assets are distributed. All this takes at least several months and may consume years in large or complex estates or if someone disputes the will.
Avoiding Pennsylvania Probate
Estate planners in Pennsylvania have many of the same probate avoidance techniques available to them that estate planners do in other states. One difference is that in Pennsylvania up to $10,000 in wages and salary earned by the deceased person can be paid directly to a surviving spouse or other family member without going through probate. Also, the executor may be able to skip probate and distribute small estates that are worth less than $50,000 and don’t include any real estate.
Beyond that, avoiding probate in Pennsylvania can employ the following techniques:
- Designating beneficiaries for life insurance, retirement accounts, annuities. Benefits from a life insurance policy that are paid to a designated beneficiary are not part of an estate for probate purposes in Pennsylvania. The same goes for funds in retirement accounts and annuities. As long a valid beneficiary has been named, these assets pass directly to the beneficiary without going through probate.
- Joint ownership. Bank accounts and other assets that are jointly owned with someone else who has rights of survivorship also not subject to probate.
- Payment-on-death accounts. Bank accounts that are set up with payment-on-death features become the property of the designated person on the owner’s death, bypassing probate.
- Transfer-on-death. Setting up bank and brokerage accounts to transfer to the ownership of someone else on the owner’s death also provide a way to get around probate.
- Trusts. You can set up a trust and transfer assets into it to keep those assets out of probate and make sure they go where you want them to go.
- Gifts. Finally, any gifts you make to heirs while still alive will also avoid probate.
Probate Avoidance Caveats
The small estate cap of $50,000 may not allow an estate to avoid probate if there are minors involved or if someone disputes the will. Also, beneficiary accounts can only avoid probate if a valid beneficiary is named, so these should be checked to make sure designations are valid.
While trusts can be effective for bypassing probate, they can be costly to set up and, once assets are transferred into the trust, the owner may lose control of them. Similarly, gifting assets to people while alive means losing access to those assets and may have tax consequences. While avoiding probate is often a good idea, it’s possible to spend more money and time avoiding it than it would require to go through it.
Bottom Line
Avoiding probate in Pennsylvania looks much like avoiding probate elsewhere. Small estates, life insurance payments and assets in beneficiary accounts such as retirement accounts can bypass probate. Similarly, joint ownership, payment on demand and transfer on demand can see that property, bank accounts and securities are swiftly transferred to heirs without the delays and costs of probate. Finally, trust and gifts are also effective ways to get around probate, they can involve loss of control and, in the case of trusts, require some money to set up.
Estate Planning Tips
- Planning an estate can be complicated by emotional considerations as well as financial and technical complexities. A financial advisor can bring objectivity and expertise to the task and help ensure your wishes are carried out after you are no longer around. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- While everyone’s estate is going to have different needs, make sure you cover this estate planning checklist so that you’re off to the right start.
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