Estate Administration

The costs of estate administration are paid by the estate. It may be necessary for the personal representative (the executor or administrator) to pay some of these costs initially, in order to open the estate; however, the personal representative could reimburse himself or herself from the estate’s money.

Yes. Under Pennsylvania law, a personal representative’s compensation must be “reasonable and just” given the circumstances of the administration.

In practice, personal representatives’ compensation often is calculated as a percentage of the estate’s gross value. The percentage typically varies from 5% to 0.5% depending upon the estate’s total value, as follows: 5% on the first $100,000; 4% on the second $100,000, 3% on the estate’s value from $200,000.01 to $1,000,000.00, and so on. However, these percentages only are rules of thumb. If other parties question or object to the personal representative’s fee, the representative should be able to explain what he or she did to earn the commission, and will have to persuade the court that the amount paid was reasonable.

In situations where an estate’s funds are not sufficient to pay its debts, Pennsylvania law specifies the order in which creditors’ claims must be paid. This order is:

1. Costs of administration (including personal representatives’ commissions and the estate’s legal fees);
2. Family exemption (up to $3,500 total, available to certain family members who were members of the decedent’s household on the date of the decedent’s death);
3. Cost of the decedent’s funeral and burial, and costs for certain items provided to the decedent in the six months prior to his or her death, which are: medicines, medical and nursing services, hospital services, services paid by Medicaid, and services provided to the decedent by his or her employees;
4. The cost of a gravemarker;
5. Rent owed for the decedent’s residence for the six month period prior to death; and, finally,
6. All other claims by creditors.

By giving the personal representative’s commission first priority, the law provides an incentive to administer even insolvent estates. This priority reflects the public’s interest in having decedents’ estates administered. It’s better that decedents’ estates be opened and creditors be paid something, rather than estates’ funds just sitting in bank accounts.

The Pennsylvania inheritance tax is a death tax. It applies to a decedent’s net estate, certain nonprobate property that beneficiaries receive as a result of the decedent’s death, and certain gifts the decedent made within one year prior to death.

The amount of the tax depends upon who receives the property. Rates are as follows:

While federal estate tax has a “unified credit”, which acts as a threshold below which federal estate tax doesn’t apply, Pennsylvania inheritance tax doesn’t have this feature. Most transfers to beneficiaries and heirs are subject to the tax, and Pennsylvania inheritance tax is paid in most solvent estates.