This week’s article is written by associate attorney and contributing author Douglas M. Nelson, Esq.
Frequently, disputes arise between the executors and beneficiaries of an estate concerning the disposition of a deceased individual’s home. (The content of this blog applies to administrators of intestate estates and trustees of revocable living trusts as well. However, to make the reading easy, we’ll use the term executor.) On the one hand, executors are often under the impression that since a decedent’s home is part of the overall estate, they may dispose of it as they see fit. On the other hand, beneficiaries who reside on the property or have strong nostalgic feelings for it, often see the property as theirs and that the representative of the estate is meddling with their home.
The law on how real estate passes upon the owner’s death is more nuanced than the emotions of the beneficiaries. When an ambiguous last will and testament is thrown in the mix, the results are often unpredictable. Thus, all interested parties in the estate should actively assess the terms of the will and the ever-changing legal landscape concerning how real estate passes upon the owner’s death.
As a general principle in New Jersey, title to real estate vests in the estate’s heirs immediately upon the testator’s death, even before the will is probated. See I.E.’s, L.L.C. v. Simmons, 392 N.J. Super. 520 (Law Div. 2006). Such a position has long been held as the Appellate Division, in 1967, famously explained that “title to realty vests, subject to the executor’s power to sell to pay debts, upon testator’s death, even before admission of the will to probate.” Montclair National Bank & Trust Co. v. Seton Hall College of Medicine, 96 N.J. Super. 428, 434 (App. Div.), certif. denied, 50 N.J. 301 (1967). In short, the general rule allows for the property to vest in the beneficiaries, while subjecting the property to the authority of the executor for administration purposes.
In 1968, the Legislature enacted N.J.S.A. 3A:6-16.1 et seq., substantially increasing the powers of executors with respect to real estate owned by a decedent at the time of his death. Then, in 1976, the Supreme Court of New Jersey, in In re Estate of Widenmeyer, 70 N.J. 458, 461 (1976), upheld the standard espoused by Montclair National Bank as it pertained to specific devises, however, the Widenmeyer decision was factually limited solely to instances regarding specific devises of realty as the court further stated:
We have purposely limited this decision to the factual context actually presented here — a case where there is a specific devise of realty. A fairly recent statute [] N.J.S.A. 3A:6-16.1 et seq. has altered and substantially enlarged the powers of fiduciaries, including executors, with respect to real estate owned by a decedent at the time of his death. For the most part, and in all respects relevant to the facts of this case, these additional powers are expressly inapplicable to “. . . property or any interest therein . . . specifically disposed of.” N.J.S.A. 3A:6-16.2(e). What effect, if any, this statute may have upon the general issue here discussed, with respect to real estate not specifically devised, we reserve until such time as that issue is actually presented, briefed and argued.
Not content with the probate statutory scheme, in 1982, the Legislature adopted Title 3B, which governs the administration of estates, and which repealed the portions of N.J.S.A. Title 3A cited to in Widenmeyer. Like Title 3A, Title 3B provided substantial powers over real estate to the executor.[1] However, despite the statutory enactments of 1968 and 1982, the general rule of Montclair National Bank has apparently not been overturned, albeit the general rule is subject to greater powers vested in the executor under Title 3B.[2]
Moreover, while the executor retains wide powers under Title 3B, and such real property may be distributed in kind, sold, mortgaged, etc., such authority does not allow the executor carte blanche over the assets of the estate.
For example, in In re Estate of Hope, 390 N.J. Super. 533, 541 (App. Div. 2007), the Appellate Division, in a case which allowed an executor to distribute the real estate in kind or sell the same and distribute the net proceeds in cash, stated that the “will does, however, provide the personal representative with the power to undertake either method of distribution. It permits the personal representative to sell ‘any and all’ of the decedent’s property, but does not require him to do so. A fair construction of the will leads to a conclusion that the decedent had no preference for distribution in kind or distribution in cash.” Id. at 539.
As the will gave no specific preference for the type of distribution in Hope, the court, noting similarities between N.J.S.A. 3B:23-3 and the Uniform Probate Code, found that “‘a personal representative should make distribution in kind whenever feasible and . . . convert assets to cash only where there is a special reason for doing so.’ Comment to Unif. Probate Code § 3-906 (1998). Thus, given the similarity of language between the UPC and N.J.S.A. 3B:23-3, we conclude that the New Jersey statute also expresses a preference for in-kind distributions.” Id. at 540. Further, the Hope court determined that “if any devisee of a particular asset objects to the in-kind distribution of that asset, distribution in kind of that asset is not required; instead, the mode of distribution is subject to the equitable discretion of the personal representative of the estate, and ultimately, of the court.” Id.
Thus, the Appellate Division allowed an executor to distribute in cash, but that in-kind distribution is preferred, unless a beneficiary objects, and in that case, the distribution is in the discretion of the executor or the court — in short, outcomes that vary wildly based upon the family dynamics, a single beneficiary’s goals, the executors whims, and what a court may ultimately decide.
In all, while it appears that Montclair National Bank remains good law, such that title vests in the beneficiaries of the estate upon the Decedent’s passing, given statutory and case law developments in the intervening 48 years, such title remains subject to the executor’s increased power to administer the estate and to make distributions in kind or in cash, given the attendant circumstances of the case. In light of the nuanced probate statutes and changing case law which pertain to the disposition of a decedent’s real estate, executors and beneficiaries must closely examine the will and the ever-changing laws to protect the rights and responsibilities of all interested parties.
[1] See N.J.S.A. 3B:14-23 (allowing an executor to take possession of non-specifically devised property and rent, manage, mortgage, or sell the property); id. (“In the absence of contrary or limiting provisions in the judgment or order appointing a fiduciary, in the will, deed or other instrument or in a subsequent court judgment or order, every fiduciary shall, in the exercise of good faith and reasonable discretion, have the power. . . to distribute in kind any property of the estate or trust as provided in article 1 of chapter 23 of this title.”)
[2] Compare Montclair National Bank & Trust Co. v. Seton Hall College of Medicine, 96 N.J. Super. 428, 434 (App. Div.), certif. denied, 50 N.J. 301 (1967) to N.J.S.A. 3B:3-1 (“Upon the death of an individual, his real and personal property devolves to the persons to whom it is devised by his will . . . subject to rights of creditors and to administration.”); see also Pries v. Hugin, 2009 N.J. Super. Unpub. LEXIS 2967 (App. Div. Dec. 7, 2009) (“even though title to the property may have nominally passed by Will to the heirs of [the decedent] upon her death, possession and control were vested in the Executrix and remain so vested. [The] Executrix of the Estate, is charged with the management and control of the Estate, in trust, for the benefit not only of her siblings, but also of the creditors and others interested in the Estate.”); I.E.’s, L.L.C. v. Simmons, 392 N.J. Super. 520, 531 (Law Div. 2006).
