I'm the sole executor of my mother's estate. The estate is just her house which my siblings & I are beneficiaries. If the house sells for $198,500 but after closing fees I get $186,500, would I calculate the executor's fee & inheritance tax from the $198,500 or from the $186,500?
Fiduciary Fees are normally calculated based on the value of the gross estate ($198,500). My understanding of Pennsylvania's inheritance tax is that it is based upon the value you actually recieve ($186,500/number of beneficiaries). However I am not a PA lawyer and you'd do well to double check that. The estate is well under the threshhold for Federal Estate Tax.
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Pennsylvania Inheritance tax is based on relationship to the decedent. The tax rate is 4.5% for children. When real estate is sold, Pennsylvania typically allows sales expenses to be deducted. An executor fee can be based on the percentage of assets in the estate. The executor's fee is deductible on a PA inheritance tax return, but will be subject to state and federal income tax. There may also be other expenses that can be deducted on the Inheritance tax return. A knowledgeable estate administration or probate attorney will be able to assist you about the Inheritance tax return.
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Generally speaking the executor's fees are based on the size of gross probate estate, so you would base your fee on the higer number. Remember that the percentage decreases as the size of the estate increases. Also, note that you must pay income tax on the executor fee at both the federal and PA level. Finally, you should discuss your fee with your siblings to avoid problems and possible hard feelings.
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