Thursday, July 11, 2013

Limits Increased for Direct Payments to Family Members of a Decedent

Pennsylvania has updated a state law that permits small amounts to be distributed on death by court petition without the formal appointment of a personal representative. 
Even more significantly, the new law also raises the limits for direct payment of bank and similar deposit accounts and nursing home patient care accounts to family of a decedent. The provision for payment of bank deposits is made mandatory.
Act 35 (House Bill 513) was signed into law by the Governor on July 2nd. It takes effect in 60 days.  The increased limits apply to estates of decedents dying on or after the new law’s effective date.

Small Estate Limits Increased (20 Pa. Cons. Stat. §3102)

Under prior law (20 Pa. Cons. Stat. §3102), survivors have long been permitted to use a simplified “small estate” process to authorize distribution if the decedent’s property (not counting real estate and certain other assets) was worth $25,000 or less (20 Pa. Cons. Stat. Ann. § 3102). Appointment of an executor or other personal representative is not required. The $25,000 limit had not been raised since 1994. Act 35 increases the limit to $50,000.

Direct Payments to Family Members and Funeral Directors (20 Pa. Cons. Stat. §3101)

Payments of Bank and Similar Deposits - Under another provision of Pennsylvania law (20 Pa. Cons. Stat. §3101(B)), banks and similar depository institutions have been permitted to pay up to $3,500 to family members of a decedent, provided: (1) the total accounts of the decedent held by the institution did not exceed that amount and (2) there was proof that satisfactory payment arrangements had been made for funeral services. 
Act 35 raises this amount to $10,000 and makes the payment by the bank mandatory rather than discretionary.
Patient Care Accounts – Individuals who are institutionalized and are receiving PA Medical Assistance (Medicaid) payments typically have a patient care account. For some individuals these accounts can contain as much as 8,000. Under prior law (20 Pa. Cons. Stat. §3101(C)), the facility was authorized to pay amounts from the account up to $3,500 to a licensed funeral director for burial expenses for a deceased patient.  Amounts not paid for burial expenses could be paid directly to family members up to a $4,000 aggregate limit.  
Act 35 increases the amount that can be paid to $10,000.  
The order of priority of payment to family from bank deposits and patient care accounts is:
  1. Spouse
  2. Child
  3. Father or Mother
  4. Sister or brother

Jeff’s Analysis

In my opinion the direct payment increases under 20 Pa. Cons. Stat. §3101 are the more significant of the amendments enacted by Act 35. 

In select situations a small estate proceeding under §3102 can reduce estate administration costs. However, 3102 still involves a court petition and the process can end up being nearly as complicated as a formal probate. But distributions to family members under §3101(B) and (C) can be made simply, directly, and without court involvement.

Recipients of deposit accounts under §3101 should recognize that the funds they receive may be subject to Pennsylvania inheritance tax and to possible recovery by the Department of Public Welfare through its estate recovery program (if the decedent was over age 55 and had received Medicaid long term care payments). The law makes recipients answerable to anyone prejudiced by an improper distribution. And inheritance tax law and estate recovery regulations also make recipients liable for payments due under those programs.  

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