Estate Administration - The 3 Stages

While each estate administration presents different facts - the terms of the Will or Trust, the amount and composition of the assets, each estate in New Jersey goes through the same 3 stages

·         Probate.  The first stage is when the Will is offered for probate at the local Surrogate’s Court.  This is a very simple process in which your executors present the Will, and then they are issued Letters of Testamentary, which will give the Executor(s) the authority to carry out your wishes as set forth in your Will.  This is done by making an appointment with the Morris County Surrogate’s Court (10) ten days after the date of your death.  Alternatively, if the Executor(s) decide to attain an attorney to assist them, the attorney’s office can often have the documents signed at their office. If there is no Will, an Administration is opened where your Administrators are issued Letters of Administration.  Letters Testamentary and Letters of Administration give your representative the power over your assets and to settle any liabilities.

·         Gather Assets; Pay Liabilities.  The second stage is gathering together all your assets, determining their value, paying any debts or liabilities (including taxes if any) and filing any necessary tax returns.  Until the tax returns are filed and approved (or a waiver is completed because no taxes are due) New Jersey has a lien on your assets and they cannot be fully distributed. 

·         Closing the Estate.  Once the tax returns are approved, New Jersey will issue a Waiver, which releases its lien on the assets.  The Executor then normally accounts to the beneficiaries what came into the estate, what went out, and what is left to distribute.  This informal accounting is coupled within a “Release and Refunding Bond” where the beneficiaries agree to their distribution, waive any claim to be entitled to more, and release the Executor from liabilities.  The accounting and “Release and Refunding Bonds” will act to close the Estate.  You should anticipate that the entire Estate Administration process will be a 14-24 month process.

The Executor/Administration has many responsibilities beyond these.  We find that since people are generally taking on the job of Executor/Administrator for the first time, it appears overwhelming.  By looking at the job in stages, it becomes more manageable and doable.  Many Executors/Administrators seek professional advice because even if they can consider the job in stages, their lack of experience in that role, and not knowing their responsibilities and questions to ask, potentially opens them up to liability and claims from the beneficiaries or tax authorities. 

Insolvent Estates - Who gets paid What when an Estates Debts are more than its Assets?

A decedent doesn't always leave assets to his or her heirs - instead there may only be a pile of debt.  An estate is known as an "Insolvent Estate" when its liabilities exceed its assets.  What to do in that situation?

When determining if there are any assets that will pass to heirs, it is first important to understand that certain assets in New Jersey are excluded from satisfying a decedent's debts.  There are special categories of assets, such as retirement plans (IRA, 401(K), 403(b)) and life insurance, that are exempt from the claims of creditors under state law in New Jersey. Accordingly, there could be beneficiaries of a 401(k) plan and a life insurance policy who will receive assets as a result of the decedent's death, but creditors will go unpaid because there are not sufficient assets outside of the retirement plan and life insurance to satisfy the decedent steps. Look to NJSA 25:2-1 regarding the exclusion of retirement plans, and NJSA §§ 17B:24-6 regarding the exclusion of life insurance.  See here for a great guide of creditor protection for life insurance in all states.  One important caveat is that if the "estate" is the named beneficiary of the retirement plan or the life insurance policy, then the proceeds will be available to satisfy the claims of creditors. Therefore, to get the benefit of creditor protection it is important to name a person or trust as the beneficiary of that asset, and not the "estate".

The next question in this case is if the person is named as the Executor under the Will wants to take on that role under the Will. If there are no assets that are distributable to heirs, and the Executor is only going to be acting for the benefit of creditors, the Executor may be concerned about taking on that role and liability.  Remember, being named as a Executor is only a nomination to that role – the Executor is free to decline for any reason.

In paying the claims of creditors, certain claims have priority over other claims. The theory behind this is that if certain claims were not paid, there will be no incentive to provide the necessary services to an estate that may be insolvent.  The priority of payment is (See NJSA 3B:22-32): 

  • Reasonable funeral expenses;
  • Costs and expenses of administration (including attorney fees, accountant fees, surrogate fees, executor commission, and other costs necessary to the handling of an estate);
  • Debts for the reasonable value of services rendered to the decedent by the Office of the Public Guardian for Elderly Adults;
  • Debts and taxes with preference under federal law or the laws of this State (including any current or back taxes, interest and penalties);
  • Reasonable medical and hospital expenses of the last illness of the decedent, including compensation of persons attending him;
  • Judgments entered against the decedent according to the priorities of their entries respectively;
  • All other claims.

If there is more than one claim in any class of claims, and insufficient dollars to pay all of that class of claims,  then the claimants of the same class will be paid in proportion to the amount claimed.  This might happen if there were six different medical bills dealing with the decedent's final illness, and not enough dollars to pay all those bills.  See NJSA 3B:22-32.

Executors dealing with insolvent estates therefore have to be very carefully aware of (1) what assets of the estate are available to satisfy claims, and (2) a plan to address a situation where there are not enough assets to pay all debts.

Holographic Wills and Undue Influence - Watcha talkin about Willis?

Actor Gary Coleman's life and death were tragic in many ways.  Unfortunately, some of circus that engulfed his life followed after death due to confusing estate planning, as an article by Jun Li  at Celebrity Justice highlights (quoting yours truly).  

Coleman prepared a Will in 2007 using an attorney, leaving everything to ex-girlfriend Anna Grey..  In 2007 he  purportedly hand wrote out a new will (a "holographic will') that left his estate to his then wife, Shannon Price.  He and Price divorced in 2008 but Price claims that had a common-law marriage after that point.  And you thought his exploits during life were confusing.

In some states, such as Utah (where Coleman died) and New Jersey holographic wills are legal, so long as they adhere to certain requirements (all in the person's own handwriting, witnessed by 2 persons being common requirements).  

An issue that often arises with holographic wills, especially those made when someone is ill, is undue influence.  There are very limited grounds to overturn a person's Last Will and Testament.  One of those grounds in undue influence, which is to say that a person had undue authority over another when they were making out their will which may have lead a person to name them as a beneficiary our of fear instead of desire.  This issue can arise frequently when a senior has made a handwritten will disproportionately favoring a caregiver child during a period of illness.  

For those who do wish to make a disproportionate distribution to a caregiver child, be aware that a holographic will may not stand up under scrutiny.  This may be an instance where an attorney should be involved to make sure that your wishes are fully enforced after you are gone.