Business Receivables After an Owner's Death in PA

When a business owner dies, most families ask first what the estate owes. This post is about the other side of the ledger: the money customers still owe the business. Unpaid invoices get harder to collect the longer they sit. Who can collect them, and how, depends first on how the business was set up.

First question: who owns the receivables?

Sole proprietorship: the receivables belong to the estate

A sole proprietorship has no separate company standing between the owner and the business. The unpaid invoices are owed to the owner personally, so at death they become part of the estate. Pennsylvania’s inheritance tax return treats the business the same way, as an interest held by the decedent (PA Department of Revenue, REV-1504 instructions).

The personal representative (the executor named in the will, or an administrator if there is no will) has the right, and the duty, to take possession of and administer the decedent’s personal estate, and the right to bring any action concerning it (20 Pa.C.S. § 3311(a)). Collecting what customers owe is part of that job.

LLC or corporation: the company still owns them

If the business was an LLC or a corporation, the receivables never belonged to the owner. They belong to the company, and the estate owns the owner’s interest in the company.

LLC. A Pennsylvania LLC is “an entity distinct from its member or members” (15 Pa.C.S. § 8818(a)). An individual member is dissociated at death (§ 8861(7)(i)). The personal representative may then exercise the rights of a transferee and, for the purpose of settling the estate, the deceased member’s rights to company information (§§ 8850, 8854). That is not the same as a right to run the company or sign for it.
Corporation. A business corporation can own property and sue in its own name (15 Pa.C.S. § 1502(a)(2), (4)), and its business and affairs are managed by or under the direction of its board of directors (§ 1721). The estate holds the shares. It does not hold the invoices.

A single-member LLC needs attention quickly. With its only member gone, the company dissolves 180 consecutive days later unless, within that time, a new member is admitted with the consent that 15 Pa.C.S. § 8871(a)(3) requires. Read the operating agreement as well, since it may say who steps in at a member’s death.

Who can sign the demand letters and deposit the checks

For a sole proprietorship, the answer is the personal representative, and that authority comes from letters granted by the Register of Wills: letters testamentary for an executor named in the will, or letters of administration (20 Pa.C.S. § 3155). Expect customers and banks to ask for proof of your appointment before they deal with you.

For an LLC or corporation, the company collects its own receivables through whoever the operating agreement, bylaws or board authorize. If the owner was also the only manager or officer, sorting out who can act for the company is often the first real task. A spouse or child who “helped with the books” does not get signing authority from that alone.

Collected money should go where the receivable belongs: into an estate account for a sole proprietorship, or into the company’s own account for an LLC or corporation. Never deposit it into a personal account.

The four-year clock keeps running

Many claims to collect unpaid invoices fall within Pennsylvania’s four-year limitation period. Under 42 Pa.C.S. § 5525(a), it covers actions on contracts for the sale or furnishing of goods, on express agreements that were never put in writing, and on obligations founded on a writing. Some claims carry a different period, so confirm the deadline for each account.

Nothing in § 5525 stops the clock because the person owed the money has died. 42 Pa.C.S. § 5533 pauses the clock while a claimant is a minor and provides that insanity or imprisonment does not extend it. It says nothing about death. The one-year extension in 20 Pa.C.S. § 3383 does not help either, because it applies only to claims against the person who died. The safe assumption is that the deadline on every open invoice kept running through the owner’s death and is still running.

A practical checklist for executors

Get appointed. Without letters, you have no authority to collect for the estate. Our page on estate administration in Pennsylvania walks through that process.
Find the records. Look for the general ledger or bookkeeping file, copies of invoices, the accounts receivable aging report, customer contracts and purchase orders, and recent deposits, so you know what has already been paid. List every open account, oldest first. The owner’s bookkeeper or CPA is often the fastest route to the records.
Confirm who signs for the business, using the rules above.
Set up the right account before money comes in.
Send demand letters. Tell each customer about the death, who is now handling the account, the amount due with invoice copies, where to send payment and a date to pay by.
Decide what to do with disputed accounts. A personal representative can ask the court to approve a compromise of a claim the estate holds (20 Pa.C.S. § 3323(a)). Unless the will says otherwise, the personal representative may also sell estate personal property (20 Pa.C.S. § 3351).

If a sole proprietorship should keep operating rather than wind down, the court can authorize the personal representative to continue it for the benefit of the estate. The court gives due regard to the will, and its order can set how long the business may continue and how far the estate is liable for business debts (20 Pa.C.S. § 3314).

Receivables and Pennsylvania inheritance tax

A business interest, including a sole proprietorship, is reported on Schedule C of the Pennsylvania inheritance tax return at its value on the date of death (REV-1504 instructions). For a sole proprietorship, the Department of Revenue asks for the valuation calculations and the financial statements or federal returns for the year of death and the four years before it. If there are no financial statements, it asks for a balance sheet as of the date of death. Receivables on the books at death are part of what the business was worth that day.

A separate exemption may apply to a qualifying family-owned business, which is claimed on its own schedule (REV-571, Schedule C-SB, under Act 52 of 2013).

When to bring in a collection attorney

Bring in counsel when:

A customer disputes the amount or stops responding.
An account is large enough that losing it would change what the heirs receive.
An invoice is getting close to the four-year deadline.
A customer appears to be struggling or closing down.
You need a judgment, and then a way to enforce it.

Leeson & Co. also represents creditors in debt collection, from settlement talks before any lawsuit through judgment and post-judgment enforcement.

This is the opposite direction from the question most executors start with. For money the estate owes to others, see our post on what debts are paid after death in Pennsylvania.

Frequently asked questions

Can the executor collect money owed to a sole proprietorship?

Yes. Once appointed, the personal representative has the right to take possession of and administer the decedent’s personal estate and to bring actions concerning it (20 Pa.C.S. § 3311(a)).

Does the executor get to run the deceased owner’s LLC?

Not automatically. The personal representative may exercise a transferee’s rights and, to settle the estate, the deceased member’s information rights (15 Pa.C.S. § 8854).

Does the statute of limitations pause when the business owner dies?

Nothing in 42 Pa.C.S. § 5525 or § 5533 pauses it for a death. Treat the four years as still running.

Are unpaid invoices subject to Pennsylvania inheritance tax?

They are part of the business’s value on the date of death, which is reported on Schedule C of the inheritance tax return.

How we work with business owners and families

For an estate that is already open, we identify who owns the receivables, who can sign, and which accounts are closest to their deadline. If you own a business and are planning ahead, our pages on estate planning for business owners and business succession planning cover how to make sure someone can step in and collect without delay.

Joseph F. Leeson III trained and practiced as a CPA before he practiced law, with four years in tax accounting. He holds a JD from Indiana University Maurer School of Law and an MBA in accounting from DeSales University. He was born and raised in Bethlehem.

Call 610-691-3350 or contact Leeson & Co. Before any work begins, we give you a written fee proposal.

This post explains general principles of Pennsylvania law and is not legal or tax advice for your situation. Deadlines depend on the facts of each account. Please speak to us before acting on anything here.

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