“The Small Estates Petition”
When an individual passes away in Pennsylvania, the majority of estates are administered through the formal probate process. This process involves appearing before and opening a formal probate file at the Register of Wills, and the personal representative is granted formal Letters Testamentary or Letters of Administration (depending on whether the individual died with a will or without a will, respectively). These Letters signify that the personal representative has the legal authority to act on behalf of the estate, and they are required to close the decedent’s bank accounts, sell property, open an estate bank account to pay the debts, expenses, and taxes of the estate, and to conduct any other transactions involving the estate. By formally opening the estate at the Register of Wills, the personal representative must also advertise the estate in local newspapers, notify the potential beneficiaries of the estate, pay probate fees to the Register of Wills, and prepare and file the Inheritance Tax Return.
While the process of administering an estate in Pennsylvania is relatively low-cost, for smaller estates the added costs of formal probate may reduce the already modest inheritance the decedent’s heirs will receive. Pennsylvania law allows estates worth less than $50,000.00 to seek direct Orphans’ Court approval of the proposed distribution of the estate. This eliminates the need to formally open a probate estate at the Register of Wills and avoids the payment of some fees that are assessed as part of the formal probate process, such as probate fees and advertising costs.
Section 3102 of the Pennsylvania Probate, Estates, and Fiduciaries Code describes the requirements and procedure of settling an estate using this Small Estates Petition. Any party with an interest in the decedent’s estate may bring this Petition before the Court. To be eligible to use a Small Estates Petition, the value of the decedent’s personal property in Pennsylvania must not exceed $50,000.00. If the decedent owned real property in Pennsylvania at the time of death, formal probate must be initiated at the Register of Wills in order to allow the personal representative to sell or distribute the real property. The Small Estates Petition must provide the Court with: (1) a list of all the decedent’s personal property and the value of each item; (2) a list of all known debts of the decedent and the value of each claim; (3) the type and amount of any taxes due as a result of the decedent’s death, including the Pennsylvania Inheritance Tax; (4) the names of all beneficiaries of the estate (as determined by the decedent’s will or the laws of intestacy) and their relationship to the decedent; and (5) the proposed distribution of the estate. The Court will review the information and issue an Order authorizing the petitioner to pay the debts, expenses, and taxes and distribute the remaining estate as detailed in the Petition. This Order has the same authority as formal Letters issued by the Register of Wills and a Court Order approving of a formal accounting for an estate. The petitioner may then distribute the property according to the Order; if the petitioner fails to do so, he or she will be personally liable.
The Small Estates Petition may significantly reduce the time and expense of formally administering an estate; however, many of the requirements of formal estate administration still apply to an estate seeking to be settled via this Petition. First, the creditors of the estate take priority in having their claims repaid before the beneficiaries receive any inheritance regardless of whether the estate is administered through the formal probate process or the Small Estates Petition; similarly, the Pennsylvania Inheritance Tax Return (REV-1500) must be filed in all cases. It is very important to note that the Small Estates Petition does not eliminate the need to pay creditor claims or any taxes (including inheritance tax) owed by the estate. In many counties, the Orphans’ Court requires that the Pennsylvania Inheritance Tax Return be filed at the same time as the Small Estates Petition. As such, the proposed distribution of the estate must include the payment of any creditor claims, taxes, and/or administration expenses before stating the proposed distribution to the estate’s beneficiaries. Second, the estate must be distributed according to the terms of the decedent’s will or the laws of intestacy. Just as the estate’s personal representative must send formal notice to the estate’s beneficiaries as part of the formal probate process, the petitioner of the Small Estates Petition must send notice to all beneficiaries of the filing of the Petition with the Court. Finally, the petitioner must obtain information about the value of the decedent’s assets as of the date of death from all financial institutions and/or obtain appraisals or other appropriate valuations for tangible personal property (such as vehicles, antiques, or jewelry). Formal valuations of all property is required for the Inheritance Tax Return, and these valuations should also accompany the Small Estates Petition. The petitioner cannot list estimated values for the property on the Petition. As such, any party seeking to settle an estate through a Small Estates Petition rather than the formal probate process must work carefully to ensure that all requirements are met.
While the Small Estates Petition does not eliminate the need for many probate steps, it is an important option for modest estates because it is a simplified process designed to curb the time and expenses typically involved in estate administration.