The money and property which is left by a deceased person to the family or friends is called an estate. The person who accepts appointment as the representative is called the estate’s executor or administrator. This is the person with the obligation to distribute the funds according to the law. But what happens if the representative does not distribute the property as directed by the law and makes an inadvertent mistake? What are the consequences to the personal representative?
Many think that distribution of estate money is a straightforward affair. In some cases, that may be the case. But personal representatives are often unaware of their obligations to the government agencies concern claims and taxes.
Governmental Agency Pitfalls
This post covers three governmental agencies which personal representations should engage with before distributing money or property to the beneficiaries. It is vital that personal representatives check to verify all obligations are satisfied with these agencies. Failure to do so could put the representative on the hook for any misunderstandings of those obligations.
The first and most widely known governmental claim is the Pennsylvania Inheritance Tax (also known as a death tax). It is the responsibility of the personal representative to pay all death taxes owed by the estate no later than nine (9) months after death. Also, under certain circumstances, the person receiving the gift from the deceased may be required to pay the tax directly instead of the estate.
The second and less known claim is medical assistance. Pennsylvania’s Department of Human Services is entitled to recover “medical assistance” paid on behalf of a deceased person during the person’s life. DHS’s right to recover is for any deceased person who was age 55 or older whose medical bills were paid by Pennsylvania. See 42 U.S. Code § 1396p. Unfortunately, medical assistance is not limited to nursing home bills – it is for almost any medical benefits paid.
The third agency/ claim is income taxes owed by the Internal Revenue Service and the Pennsylvania Department of Revenue for state income taxes. Representatives may be unaware that if the deceased had substantial income during their final year of life, a final income tax return must be filed for the deceased.
Consequences for Mishandling Government Claims
The personal representative cannot rely on these agencies to send a bill. The representative has a duty to file the tax returns and request a statement of claim with DHS. If the estate money and property is distributed without these claims having been paid, the representative must satisfy the bill, even if from their own pocket. There are other types of taxes which can be owed as well such as a fiduciary income tax return for income received by the estate. It is important to consult with an attorney to fully assess all of an estate’s obligations.
These governmental agencies will enforce their claim, including medical assistance. The last thing a representative should face is a surcharge action filed by an agency to enforce their claim. The representative could be facing a last resort effort to recover money given to the beneficiaries to satisfy the claim.
As a probate law firm for estate executors, we help settle estates efficiently and reduce stress. If you know someone faced with a probate process or roadblocks to an estate property sale, please have them contact us for a free evaluation at:
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