Our father passed last June and my brother is executor. My sister handled disbursing the ira split 5 ways. The executor filled out the pa-rev 1500 inheritance tax form and put an estimate which was $260 under..is that a red flag. Also does the executor need to have a separate bank account from which to pay the inheritance tax or can it be paid from his personal bank account ?
It sounds like this may have been done without consulting with a probate attorney. That is never a good idea because deductions are often missed.
Worst case scenario on the IRA is that Revenue will ask for the additional inheritance tax ($11.70 ON 260).
An Executor should never co-mingle funds. If there are estate funds those should be in a separate estate account.
This answer is for informational purposes only and does not establish an attorney/client relationship.
Presuming that the IRA had a beneficiary designation on it, there would be no need for an executor as probate of the Will or an intestate probate would not have been necessary. If the only asset is the IRA then each beneficiary is responsible for payment of the PA Inheritance Tax. I am also assuming you are not cashing out the IRA which will result in major income tax issues. The IRA should be divided by the IRA custodian into as many shares as there are beneficiaries. The IRA custodian should be requesting paperwork for each IRA beneficiary to complete to set up a separate IRA. You should not estimate any asset or deductible debt or expense on the Inheritance Tax return. You should have obtained a date of death value from the IRA custodian, which should not be confused with the value of the IRA on the date it is taken out of the decedent's name. It sounds as if there is no attorney involved here and if that is the case, it is a dangerous practice. Someone needs to get an estate administration attorney involved.
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I agree with the previous two answers, except that Attorney Stewart makes the assumption that the IRA was the only asset, and the rest of your question suggests otherwise. Have you read the will? Sometimes the testator provides that the residuary of the estate pay all of the inheritance taxes, whether passing under the will or not. The estate should have its own SS number if there are assets other than the IRA, and a separate estate account should have been set up with the proceeds of these assets. I you have any concerns, you should consult a probate lawyer; most of us have reasonable consultation fees.
Typically you would want it to be exact but I don't think it is a "red flag" - although it is a bit lazy. I usually obtain date of death value letters from banks or at least a statement encompassing the date of death that is then attached to the return. Inheritance tax can be paid from any source. Normally one would want to set up an estate bank account and run all estate-related expenses through that account. In some cases that is not possible. If the amounts of tax are paid from a person's personal funds that person can claim reimbursements for advancing estate costs on the final accounting.
This is not legal advice nor intended to create an attorney-client relationship. The information provided here is informational in nature only. This attorney may not be licensed in the jurisdiction which you have a question about so the answer could be only general in nature.
As stated, the correct way to value assets on a the PA inheritance tax return is to obtain the correct date of death value from the financial institution. When the PA Department of Revenue audits the return it is possible that they will detect the difference and when they issue their Notice of Appraisement, they will require extra tax to be paid. As noted by other attorneys there is a bit of confusion as to what is going on here. Are there other estate assets? Is there a will and if so does it permit inheritance tax owed on non-probate assets to be paid from probate money? If this IRA is the only asset, inheritance tax can be paid by one heir, two heirs, or all three from their personal accounts. As long as it is paid the DOR does not care by whom. I would pay for a consultation with an estate attorney to make sure you are doing this correctly and if it determined that you are not, let the attorney handle this. As mentioned, you have potential income tax issues with any IRA. It may be beneficial to the heirs to pass the income tax on this IRA to the heirs to report on their individual income tax returns instead of accounting for income on the estate 1041 and paying the much higher tax rate.
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