A power of attorney is used before someone dies to handle their affairs when they are too ill to do it themselves. In NJ a power of attorney ends when the person who gave it dies. An advanced directive on medical care (also known as a living will) provides a designated person to decide how much medical care will be given to a person before the care is withdrawn. This is to avoid prolonged suffering or extraordinary medical intervention when an ill person is "brain dead" but still being treated.
Death and the Probating of a Will
When a person dies in New Jersey their Last Will and Testament (the most recent one) is filed ten days after death in the Surrogate Court in the county where the person lived. The filing requires the production of a death certificate (original with seal). The Surrogate makes sure the Will has all of the required formalities (signed by the will writer in the presence of 2 witnesses). The Surrogate court appoints the Executor (Executirix) with Letters of Administration who now becomes the personal representative of the decedent. This person has the power to gather the assets, pay bills and distribute the inheritance to the heirs. If the will is not accepted by the Surrogate court, the estate is declared intestate (there is no will) and someone in the family has to apply to become administrator.
The administrator has the same powers as the executor but may have to post a surety bond before being permitted to manage the estate. The bond is to protect the estate's money from loss.
The will is a set of instructions to the executor: what to do with the decedent's assets. For example, the marital home remains with the surviving spouse, certain money is given to the children. Bills are to be paid. An executor is allowed to take a 5% commission on the first $100,000 gross value of the estate; 3.5% on the next $800,000, and 2% on the excess over $1,000,000. In some cases the executor can petition probate court for more if the executor can show special circumstances which made administration difficult. The executor can also take a commission of 1/2 of 1% annually if the estate requires multiple year's administration. This money is distinct from any inheritance to be given to the executor. The executor has the power to sell or buy real estate, liquidate stock, pay estate expenses and gather income (such as rents,insurance proceeds, etc.) A commission is taxable income, and an deductible expense to the estate. An executor can waive the commission to avoid taxes.
Passing outside of probate and trusts; bill paying
Some assets do not belong to the estate and pass onto heirs without becoming an estate asset. These can be insurance proceeds if a specific living person is designated; pension funds, and assets held jointly with the right of succession. For a spouse, the law is the marital home is held as "tenancy by the entirety" and so title passes on death to the surviving spouse. This happens even if they are not on the deed. In some states estate planners suggest using trusts to speed up the probate process and/or to avoid excessive taxes. NJ has a relatively simple probate process and trusts are not usually needed. Sometimes a will creates a "testamentary" trust to benefit children who are minors or who are incapacitated. Bills: the executor is to pay bills in this order: funeral; estate administration expenses, debts and taxes, medical and hospital, then all other claims. If the estate runs out of money, the executor has no responsibility to pay other claims out of non estate funds.
Second marriage, two sets of children
Sometimes a will has not been changed, and even if the former spouse is still listed as a heir, if they have been divorced or had their marriage annulled, they still lose all rights to an inheritance. This is usually not true of an insurance and/or pension benefit which normally goes to the designated beneficiary. Normally a decedent provides an inheritance for all the children,whether natural or adopted. In some cases even illegitimate children are designated an inheritance. Stepchildren are according to the decedent's choice. Distribution can be made equally or by different percentage. A decedent can also disinherit a child by refusing to give them anything. This is legal, although not wise since it subjects the other children and executor to a possible long and expensive lawsuit. If a will writer leaves the spouse out of a will, the spouse can file an "elective share" which normally means that they take 1/3rd of the estate even if not mentioned in the will as a heir.
Tax return; Informal Accounting and Final Distribution; Tax liability
After 9 months the executor files an Inheritance Tax Report with NJ. At the completion of the tax year when decedent died a final income tax return should be filed with IRS and NJ Division of Taxation. After a year NJ expects the executor to provide the heirs with an accounting. What were the assets worth at the time of death? What taxes have been paid? What bills have been paid? What is the anticipated commission? How much is available for the heirs? Each heir is asked to sign and have notarized a Release and Refinancing Bond, which is filed in the Surrogate Court. The executor distributes the final inheritance and closes the estate. Sometimes more complicated estates cannot be formally closed. For example,if the decedent owned a business and the estate now operates it. Or if there is litigation and the estate cannot be closed during the lawsuit. The estate pays taxes on income; real estate taxes on property; it can withhold inheritance tax on heirs who are not close family.
The estate can be a plaintiff in a wrongful death or personal injury lawsuit. The court award becomes part of the estate and can be distributed to the heirs. The estate can be a defendant in a lawsuit: for example, a collection suit for an unpaid bill. The estate administration can also be a defendant in a contested probate. New Jersey does not permit a lawsuit against the estate by heirs until six months has passed from the filing of probate administration. Claims from creditors can be barred in certain situations. Often times creditors try to convince an executor or survivor that they are personally responsible for unpaid bills left by the decedent. This may not be true, but an executor can be named as a defendant in a collection suit. See step four for the order for bill payment. Survivors who have not personally guaranteed a decedent's debt often do not have to pay it.
An estate can face a will challenge from a disinherited spouse who files an elective share,or from a disinherited heir, or a heir who believes their share was inadequate. There can be a will contest; with some heir arguing the will does not reflect the true intentions of the decedent, or was the result of undue influence on the part of another heir or by the person named executor, or that the will writer lacked capacity (mental illness). An executor can be charged with maladministration, even theft if he uses the estate funds for his own expenses. A probate litigation is filed in chancery court, probate part. It is a judge only trial. Most chancery judges will suggest the use of mediators. The burden to overturn a will is quite hard. The court demands "clear and convincing proof." This burden of proof is not as hard as the "beyond a reasonable doubt" used in criminal court, but it is more difficult than the "preponderance of the evidence" standard used in civil court.
Some papers which might filed in probate court include: a verified complaint, a verified answer, or an order to show cause. A probate court may require financial and medical experts. Fact witnesses are required. There may be a review of the decedent's business. Estate litigation can be quite time consuming and expensive. The court often allows the expenses of the litigation to be charged to the estate. There is tremendous pressure to settle as legal bills mount. Most estate litigation ends in a settlement and does not go to trial.
Additional resources provided by the author
You might find my legal guide on different courts helpful. You might find Attorney Edward Adamsky's legal guide on Basic Tools of Estate Planning helpful. You might find Attorney Donald Burgett's legal guide on Common Estate Planning Terms helpful.