If you inherit property, of course you should be grateful and count your blessings. Still, consider the possibility that the gift may come with a big string attached – a debt linked to the property, such as is particularly common with real estate or a car. In that event, the question arises as to whether the debt must be satisfied from the particular asset or from the decedent’s estate more generally. How this question is answered can cause a big swing in the respective gift amounts for beneficiaries of an estate.

Historically, the law presumed that the debt was not to be paid from the property that was connected to it. The reasoning was that a true gift should not come laden with such a burden. Over time, as taking on debt became commonplace, this thinking changed and statutes flipped the conventional assumption. Increasingly, these laws start from the premise that the property left to someone includes the debt on the property, unless the decedent in his or her will clearly indicated a different intent. That is where careful estate planning, with professional guidance, comes in.

It is best to leave no doubt for the ordinary lay reader of a will. A general directive in the will to pay all debts of the testator is too nebulous. Instead, if the intent is not to keep the asset joined to the debt, language something like this should be used in a will: “If [the specific asset] is subject to a mortgage, security interest, or other lien, I direct that my executor pay the debt from other property of my estate which is not given to a specific person or entity.”

This scenario was played out recently in a case in which a farmer left to his (favored?) son three different farms, each of which was encumbered by debt. To his other son he left the residue of the estate. When the father died, the executor used part of the estate proceeds to pay off the loans to the farms, so that the first son would receive them debt-free. Not surprisingly, the second son, whose inheritance was thereby diminished, brought the matter to court.

The second son prevailed, forcing payment of the debts for the farms to come from the farms themselves. The father’s will directed in a general way that debts were to be paid from the estate. However, under the relevant state statute, that was not a sufficiently explicit indication of intent to satisfy the debts on the farms from the residu¬ary estate. In other words, the will had not clearly shown an intent that the first son was to receive the farms debt-free. As a result, the first son got the three farms, but he, not the second son, also got the responsibility for paying off the attached encumbrances, which totaled almost a quarter of a million dollars.

For further information and advice in any estate matter, do not hesitate to contact me at 888-800-7442, or info@fnlawyerinnj.com.

Fredrick P. Niemann, Esq., NJ Estate Plan Attorney

When creating an estate plan, especially in your will and/or trust, an important decision is who to name as your fiduciary. A fiduciary is a fancy legal term for the person who will take care of your property for you if you are unable to do it yourself, such as the executor of an estate, the trustee of a trust, or an attorney-in-fact under a power of attorney. Your first instinct might be to name one of your children as a fiduciary, but if you want to avoid conflict among your children, this might not be the best option.

When naming a fiduciary, it is important to be able to trust the individual, which is why people often name family members as fiduciaries. However problems can arise when a parent with two or more children names one child as a fiduciary. According to Fredrick P. Niemann, an attorney from Freehold, New Jersey, who spoke on the issue of family harmony at a recent estate planning seminar, a child is often not the best fiduciary for several reasons:

• It is hard for a child to be completely objective. 
• Children often disagree over many things, including how long the estate should take to complete, the selling of assets, and the division of personal property.
• Children often don’t communicate with each other well.

An alternative is to hire a professional fiduciary. A professional fiduciary can be a bank or investment firm with trust administration experience with trust powers, a certified public accountant, or a trust company. A professional fiduciary will charge a fee, but the fee should be explained ahead of time. In addition, because a professional is experienced in managing money and property, your assets are more likely to increase under this person’s or institution’s guidance.

To ensure that your family has some input, you can include a provision that allows one or more family members to discharge the fiduciary if they feel the professional is not doing a good job. This will allow your family to make sure the fiduciary is performing properly without having the burden of acting as fiduciary.

For further information and advice in any estate planning matter, do not hesitate to contact me at 732-863-9900 Ext. 101 or 105, or fniemann@hnlawfirm.com.

In his capacity as the executor of the estate, Frank Harris retained an attorney, Joseph Brady, to assist in the administration of the estate. Counsel represented the estate for one year, until his representation was terminated. Thereafter, a beneficiary of the estate petitioned the court to remove the executor named under the will and to appoint her instead. The challenger was represented by the former attorney of the estate who was terminated.

The executor challenged the petition and moved to disqualify the challenger’s counsel, asserting that Mr. Brady’s former representation of the estate created an impermissible conflict with his new client. Mr. Brady opposed the petition, arguing that no conflict existed because in representing the estate, he represented only the estate and not the estate’s executor.

The Court disagrees with Mr. Brady’s argument that he represented the estate and not the executor. “When attorneys state they are appearing on behalf of an estate,” the court writes, “such a statement is technically incorrect because the attorney is representing the personal representative of the estate, and not the estate itself or the beneficiaries of the estate.” Accordingly, an impermissible conflict of interest exists and the court grants the motion to disqualify Mr. Brady as counsel for petitioner.

Mr. Slomski’s step-daughters and his estate sued Mrs. Slomski, claiming that she lacked the proper authorization to make gifts. They argued that Pennsylvania law requires that a power of attorney specifically grant the authority to make unlimited gifts. Mrs. Slomski maintained that the statute grants an attorney-in-fact broad powers to manage bank accounts and retirement plans and that the change in beneficiaries should not count as a “gift.” The trial court ruled that Mrs. Slomski had the power to change the beneficiary designations but not to make the large distribution to the siblings. Both sides appealed.

The Court found that the power of attorney does not grant Mrs. Slomski the power to make unlimited gifts or to change the beneficiaries of the retirement plan. Citing the statute’s requirement that a power of attorney specifically authorize even limited gift making, the court says “if the phrase ‘to make gifts’ is insufficient to vest an agent with the authority to make limited gifts, it is clearly insufficient to vest an agent with the broader authority to make unlimited gifts.”

The moral of the story is that although many people think drafting a will is simple and often undertake to do it themselves or ask the attorney who did other work for them to handle this task as well, they may miss important steps that must be taken that can save a lot of heartache and money. 

This example is further reason why attorneys should reconsider doing “simple wills” when requested by a client.  Simple does not mean right.  For more information on this post, contact Fredrick P. Niemann, Esq. at fniemann@hnlawfirm.com.