INSOLVENT ESTATESINSOLVENT ESTATESAND RELATED ISSUESAND RELATED ISSUES

Institute for Continuing Legal Institute for Continuing Legal EducationEducation

December 5, 2007 December 5, 2007

Presented by Presented by Donald D. Vanarelli, Esq.Donald D. Vanarelli, Esq.

Certified Elder Law Attorney Certified Elder Law AttorneyRegistered GuardianRegistered Guardian

Accredited Professional MediatorAccredited Professional Mediator

““INSOLVENT ESTATE”INSOLVENT ESTATE”

Defined as an estate in which “the real and personal estate of the decedent is insufficient to pay debts.” R. 4:91-1(a).

PROCEDURAL ISSUESPROCEDURAL ISSUES

At any time after 9 months following death, the executor/administrator may commence an insolvency action if he/she believes the estate is insufficient to pay debts. R. 4:91-1.

PROCEDURAL ISSUES (cont’d)PROCEDURAL ISSUES (cont’d)

The Complaint must be accompanied by:

(1) an account; and,

(2) a list of the creditors (a) that have presented claims; or (b) that the executor/administrator plans to allow without submission of a formal claim.

R. 4:91-1(b).

PROCEDURAL ISSUES (cont’d)PROCEDURAL ISSUES (cont’d)

Creditors and other interested parties may take exception to the account, or to any creditors’ claims.

R. 4:91-3.

PROCEDURAL ISSUES (cont’d)PROCEDURAL ISSUES (cont’d)

The court may adjudge the estate insolvent and determine the amount and priority of each claim. The parties also have the option of proceeding in a plenary civil action on the exceptions.

R. 4:91-1(c); R. 4:91-4.

““ABATEMENT”ABATEMENT”

“Abatement” is defined as “a reduction, a decrease, or a diminution.”

-Black’s Law Dictionary

ABATEMENT TO PAY ABATEMENT TO PAY CLAIMS/DEBTSCLAIMS/DEBTS

Where assets are insufficient to pay all claims, estate claims/debts are to be paid in the following order:

a. Reasonable funeral expenses;

b. Costs and expenses of administration;

c. Debts for the reasonable value of services rendered to the decedent by the Office of the Public Guardian for Elderly Adults;

ABATEMENT TO PAY ABATEMENT TO PAY CLAIMS/DEBTS (cont’d)CLAIMS/DEBTS (cont’d)

d. Debts and taxes with preference under federal law or the laws of this State;

e. Reasonable medical and hospital expenses of the last illness of the decedent, including compensation of persons attending him;

f. Judgments entered against the decedent according to the priorities of their entries respectively;

g. All other claims.

N.J.S.A. 3B:22-2.

ABATEMENT OF ABATEMENT OF DISTRIBUTEES’ SHARESDISTRIBUTEES’ SHARES

If the testator expressly provided an order of abatement, or if the testamentary plan would be defeated by the statutory order of abatement, then the estate abates in accordance with the testator’s intention.

N.J.S.A. 3B:23-14

ABATEMENT OF ABATEMENT OF DISTRIBUTEES’ SHARES DISTRIBUTEES’ SHARES

(cont’d)(cont’d)Otherwise, except with a surviving spouse’s elective share, shares of distributees abate in the following order:

a. Property passing by intestacy;

b. Residuary devises;

c. General devises; and,

d. Specific devises.

N.J.S.A. 3B:23-12 (emphasis supplied).

ABATEMENT OF ABATEMENT OF DISTRIBUTEES’ SHARES DISTRIBUTEES’ SHARES

(cont’d)(cont’d)

Abatement within each classification is in proportion to the amount of property each of the beneficiaries would have received if full distribution of the property had been made in accordance with the terms of the will.

N.J.S.A 3B:23-12.

THE SURVIVING SPOUSETHE SURVIVING SPOUSE

When a potentially insolvent estate involves a decedent with a surviving spouse, related issues may arise for the surviving spouse.

TENANCY BY THE ENTIRETYTENANCY BY THE ENTIRETY

“The surviving spouse shall be deemed to have owned the whole of all rights under the original instrument … from its inception” N.J.S.A. 46:3-17.5.

TENANCY BY TENANCY BY THE ENTIRETY (cont’d)THE ENTIRETY (cont’d)

A Creditor of debtor spouse is deemed a tenant-in-common with the non-debtor spouse for the couple’s joint lives; the creditor’s interest is subject to the non-debtor’s survivorship interest.

Freda v. Commercial Trust Co. of New Jersey

TENANCY IN COMMONTENANCY IN COMMON

On the death of a tenant in common, the decedent’s interest becomes part of the decedent’s estate.

TENANCY IN COMMON TENANCY IN COMMON (cont’d)(cont’d)

If property was owned by a married couple as tenants in common, the decedent spouse’s share would pass to the decedent’s estate on death (and would be subject to the claims of the decedent’s creditors).

SURVIVING SPOUSE’S SURVIVING SPOUSE’S SOLE PROPERTYSOLE PROPERTY

If an estate is insolvent, creditors may seek payment of the insolvent decedent’s debts from the surviving spouse.

JERSEY SHORE MED. CTR.-JERSEY SHORE MED. CTR.-FITKIN V. BAUM:FITKIN V. BAUM:

“Both spouses are liable for necessary expenses incurred by either spouse in the course of the marriage… If [the decedent’s] resources are insufficient [to pay debts], the creditor may then seek satisfaction from the income and property of the other spouse.”

““NECESSARIES”NECESSARIES”

“Necessaries” for which a spouse may be held liable include: hospital and medical expenses and certain legal expenses, but not an automobile surcharge resulting from motor vehicle violations.

THANK YOU FOR ATTENDINGTHANK YOU FOR ATTENDING

QUESTIONS / COMMENTS?QUESTIONS / COMMENTS?