Estates and Beneficiaries: Outstanding Child Support and other Obligations
One
of the duties of an Executor of an estate, before making distributions to the beneficiaries
of the estate, is to conduct a child support search. That is, a search to determine whether the
beneficiary who is about to receive a distribution from the estate, owes any
back child support obligation. Our
experience has been that in most instances the search comes back clean and the
distribution, assuming the appropriate Receipt and Refunding Bond has been
executed, may proceed. If, however,
there is an outstanding child support obligation, then it must be dealt with, which
typically involves having to contact the appropriate probation department
through which the child support payments were to have been made, and the inheritance
being used towards satisfying the outstanding amount owing. Should the Executor fail to conduct the
search, and there be an outstanding obligation, there is personal exposure for
the Executor, as well as for the attorney for the estate.
The issue
of outstanding child support obligations also arises in connection with decedent
himself or herself. That is, an outstanding child support obligation may be a
debt of the estate itself. If the estate
is solvent, this is going to be one of the debts to which the Executor will
need to attend. If the estate is
insolvent, payment of the obligation, as well all of the other estate debts,
becomes problematic, in that, by its nature, the insolvent estate has
insufficient assets with which to pay all of its debts. In the Wills which I draft, if there are any specific
devises under the Will or any general pecuniary devises (i.e., dollar amount
devises) in the Will, I frequently will include what is called an “abatement
clause” which addresses how assets of the probate estate are to be consumed in
paying debts if the estate assets are insufficient.
The New
Jersey Probate Code itself contains a statute which addresses the order of
priority for the payment of estate debts. It is set out under N.J.S.A. 3B:22-2. To be noted, reasonable funeral expenses are
prioritized first, and then administration expenses of the estate are
prioritized second. After that, third, are amounts, if any, which may be owing to
the Office of the Public Guardian for Elderly Adults, followed fourth by debts
and taxes with preference under federal and state laws. Arguably an outstanding child support obligation
would fall under the fourth category, as would a Medicaid recovery claim. Fifth are claims for reasonable medical and
hospital expenses of the last illness of the decedent, including compensation
of persons attending the decedent. Sixth
are judgments entered against the
decedent according to the priorities of their entries respectively. Last are all
other claims. Thus, the unsecured creditor
is at the bottom of the pile, yet Executors frequently make the mistake of
paying them first.
Note
that N.J.S.A. 3B:22-2 further provides that,
“No preference shall be given in the payment of any
claim over any other claim of the same class, and a claim due and payable shall
not be entitled to a preference over claims not due. The commencement of an
action against the personal representative for the recovery of a debt or claim
or the entry of a judgment thereon against the personal representative shall
not entitle such debt or claim to preference over others of the same class.”
If
there is an outstanding child support obligation, it can be expected that the
Office of Child Support Services may try to levy against, for example, bank accounts
which the decedent owned. Should that
happen, the estate should timely contest the attempted levy (which would be
seeking to grab the bank funds), and assert that such action would violate the aforementioned
New Jersey statute on the order of priority for the payment of the estate’s
debts. We have successfully made that
argument. The funds which would have
been levied against, can then, (assuming the account would pass through the
estate), make their way into the pool of probate assets for use by the Executor
in paying the aggregate of the estate obligations in the order of priority set
out in the statute as discussed above.
Also
to be noted, the Executor should be aware of the Multiple Party Deposit Account
Act, pursuant to which it may be possible for the Executor to claw back into
the probate estate monies in bank accounts in which the decedent had an
ownership interest but because of the titling on the account would have passed
outside the probate estate directly to one or more joint owners or beneficiaries. We have had to use that statute in a number
of estates over the years.
Note
that an insolvent estate may give rise to the need for an insolvency proceeding
in the Superior Court, Chancery Division – Probate Part, in the county where
the Will was probated or the intestate administration commenced.
The particular
facts of any estate vary, thus the Executor should consult with legal counsel
before embarking upon the payment of the estate debts, and as indicated above,
the Executor must be mindful of unpaid child support obligations of the both
the decedent and the beneficiaries of the estate. Very early on in the estate administration
the Executor is going to need to get a handle on the estate debts and what
assets are available to pay off those debts.
