The question of what personal property is in a will is important in Pennsylvania. That is because all of a person’s property owned at the time of their passing must be classified as either probate or non-probate property.
Probate property must pass through the probate process after the owner has passed away. It may possibly be subject to the Pennsylvania estate tax, which is why the issue is important in Pennsylvania. Property that must pass to heirs through the probate process and assets that may pass outside of probate are usually treated differently for estate tax purposes.
Generally, probate property could be subject to the Pennsylvania estate tax, whereas non-probate property would not be subject to the estate tax. It is important to note that personal property is not subject to personal property tax in Pennsylvania.
Property that must pass to a deceased person’s heir through probate is distributed as directed by the person’s will. If there is no will, it is distributed according to Pennsylvania’s laws of intestacy. Laws of intestacy are laws that prescribe what happens to a person’s probate property if they do not leave a will. Of course, the deceased person’s debts and other liabilities must be paid before any distribution of probate property can occur.
Most of a person’s assets are considered probate assets. This would include most of their personal property. Personal property is generally property that is not real property or intellectual property, e.g., trademarks, patents and copyrights.
However, if a parcel of real estate is owned solely by the deceased person, it must pass through probate, even though it is not personal property. One option for avoiding probate in this situation is a Lady Bird deed, known in legal terminology as an “enhanced life estate deed.”
A person who has a special kind of life estate in a piece of property has control over and rights to the property until their passing. After their passing, the property automatically transfers to new owners specified in the deed and it does not have to pass through probate. A person who would be interested in avoiding probate for real property would want to have a legal consultation in Pennsylvania with a Pennsylvania lawyer for more details about this option.
However, if the deceased was the sole owner of a business or an interest in a business, it is an asset that must pass to heirs through the probate process.
Such items as clothing and personal effects, jewelry, furniture, works of art, and household furnishings are personal property. They would need to pass to heirs through probate unless they have been disposed of through other means. For example, the deceased person may have made a gift of personal property before passing. Or they may set up a trust and place the property in the trust. There are options for avoiding probate for personal property.
Personal property contracts are legal agreements in which the owner of an item of personal property sells it to someone else. Generally, the purchaser agrees to pay the owner in exchange for the transfer of ownership. However, personal property contracts may also document other transactions, e.g., the lease of personal property.
In Pennsylvania, most of the assets that a deceased person leaves are going to be considered probate assets unless there is a legal exception for a particular item. Any asset for which there is a legal exception to probate is, of course, a non-probate asset.
Non-probate assets pass to a person or entity who is usually referred to as a “beneficiary.” An example is a life insurance payout. When a person buys a life insurance policy, they name a beneficiary who should receive the payout of a specified amount of money upon the death of the insured person. The insurance payout does not go into the insured’s probate estate. It goes directly to the named beneficiary.
Examples of common non-probate assets that may or may not be classified as personal property also include:
- Retirement accounts, e.g., 401(k) accounts and rollover IRA accounts
- Trust assets
- Real estate owned jointly by a married couple
- Real estate held with another person or people to whom the deceased was not married as a joint tenancy with right of survivorship
- Accounts that transfer or are payable on death to a designated beneficiary.
These assets will pass directly to a designated beneficiary or a person who is a co-owner of the asset, e.g., real estate owned jointly with another person or entity.
