Estate Planning And Estate Administration Issues For A Non Pennsylvania Resident Who Owns Pennsylvania Real Estate
If you own real estate in Pennsylvania at the time of your death, your executors will have Pennsylvania legal issues to address, even if you are a resident of another state. Your executors probably will have to deal with at least the following issues under Pennsylvania law:
- Who now owns the real estate?
- Is a Pennsylvania probate proceeding required to properly pass legal title to the new owner?
- Will a Pennsylvania Inheritance Tax Return be required?
- Will any Pennsylvania Inheritance Tax be due and if so, how much?
- Can the executor sell the real estate?
- What steps need to be taken to be certain that the real estate can be sold at a later date without problems?
- Will any transfer of the real estate be subject to realty transfer tax or will a tax exemption be available?
- Will your ownership of the real estate cause the Pennsylvania Department of Revenue to assert that you were a Pennsylvania resident and claim tax on your entire estate - even the non-Pennsylvania part?
The answers to these questions depend on a number of things. A careful examination of all the facts and circumstances, by someone who understands the various legal principles and rules involved, is required to correctly answer these questions. All the relevant considerations and the appropriate legal analysis under different situations are well beyond the scope of this article. The Pennsylvania Probate, Estates and Fiduciaries Code, the Pennsylvania Inheritance and Estate Tax Act, the Realty Transfer Tax portions of the Pennsylvania Tax Reform Code, the Pennsylvania Department of Revenue regulations, the terms of any applicable will or trust and the Pennsylvania case law will all help determine the answers to these questions.
- Ownership of the real estate might pass under a will, under the intestate laws, pursuant to the terms of a trust, by operation of law, pursuant to a court adjudication, pursuant to a lifetime contract or in other ways.
- Probate proceedings may be required, although in some situations, title will pass without the need for probate.
- Generally a Pennsylvania Inheritance Tax Return will be required and often Pennsylvania Inheritance Tax will be due - but not always. In the past, Pennsylvania Estate Tax may also have been due. The fact that the owner - or one of the owners - was not a Pennsylvania resident does not relieve the burden of the various Pennsylvania taxes. However, it may change the manner of computing the taxes. Different Pennsylvania Inheritance Tax returns are used for residents of Pennsylvania and for non-residents, and the tax is often computed differently.
- The executor may sell the real estate without any further authorization under some circumstances. Specific court authorization might be required under other circumstances. In some cases, a sale by the executor actually may be prohibited.
- Even where there is no immediate desire to sell the real estate after death, unless proper procedures are followed, it may be difficult, cumbersome or costly to sell the real estate at a later date.
- The realty transfer tax exemptions can be confusing and can present traps for those unfamiliar with the statute, regulations and interpretation of the law by the Pennsylvania Department of Revenue. Sometimes, a transfer can be structured in one way that permits a claimed tax exemption although a similar transaction, structured a different way can be taxable.
- The ownership of Pennsylvania real estate by a former Pennsylvania resident may trigger an inquiry by the Pennsylvania Department of Revenue and result in a claim that the person was still a Pennsylvania resident at the time of her or his death. If not successfully challenged, this could result in the imposition of Pennsylvania Inheritance Tax (and previously, possibly Pennsylvania Estate Tax) on the entire estate - not just the Pennsylvania real estate. Knowledge of the relevant factors and their proper application could avoid this potentially costly result.
The best way to avoid problems and be certain of the answers to these questions in your particular circumstances is to consult with knowledgeable advisors and plan for these things during your lifetime. With proper planning, many, if not all, of the problems can be avoided and the desired results can be obtained.
Where it is too late for lifetime planning, timely proper legal advice to the survivors after death can still produce the most advantageous result under the circumstances. The failure to plan during lifetime may not necessarily result in adverse legal and tax consequences if appropriate action is taken promptly after death. It may be too late to avoid all adverse consequences, but it is preferable to make the best of a bad situation than to simply ignore the problems and be stuck with an even worse result, - especially when it could have been at least partially avoided.
Copyright 2013 Marc H. Jaffe
Note: The statements contained in this Article are set forth here for information purposes only and are not intended to be legal advice. You should consult a lawyer for legal advice about your own particular situation.