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Recouping Expenditures Through Estate Administration

Being the executor of an estate is oftentimes an arduous and time-consuming endeavor. Generally, executors receive compensation for their work in addition to repayment for their personal contributions to costs relating to estate administration. What, however, can be deducted and reimbursed from the estate is up for debate. Obviously, taxes, postage, copies, probate fees, etc. are paid from the estate – and if the executor pays for these expenses out of their own funds, they would be reimbursed. But how are expenses paid out before the one’s death, by a future executor, treated when it is time to handle the estate? As always, it depends.

New in New Jersey

New Jersey allows an executor to receive a percentage of the estate as compensation. The state also permits reimbursement for out-of-pocket expenses relating to the estate that are incurred by the executor. In a recent case, the New Jersey Superior Court, Appellate Division, allowed a guardian to execute a mortgage to himself, on behalf of his ward, to later reclaim expenses owed to him. While only binding on the parties involved, the court permitted repayment of unique fees and expenses paid out by the executor. This judgment may provide a persuasive safety net for recovering expenses owed to executors.

In Detail

In this case, a mother lived in her home with her son Sheldon. Her other son, Peter, was her guardian. When mother’s health declined, the sons began preparing for her Medicaid qualification. The brothers agreed to put mother’s home in Sheldon’s name. Because of certain expenses that Peter had incurred on their mother’s behalf during the years leading to her infirmity, the transfer of the home to Sheldon included a mortgage for those expenses. The mortgage was executed by Peter, as mother’s guardian, to himself and was to be paid to him from the sale of the home after Sheldon’s death. The mortgage specified that additional future expenses contributed by Peter would be added to the principal amount due. Mother then qualified for long-term care Medicaid and Sheldon continued to live in the home until his death.

Peter was appointed executor of Sheldon’s estate. During the years following the transfer of the home to Sheldon, Peter had paid all expenses relating to the home, on Sheldon’s behalf. Sheldon did not maintain the home while he lived out his days in the home and Peter was required to put a substantial amount into the home in preparation for sale.

Over the years, Peter had expended a significant amount of personal resources toward the care of his mother and toward his brother’s home. After accounting for the original mortgage, fixing up the home for sale, and legal expenses for probate, there was little left for Sheldon’s only son, Joshua. Joshua sought to void the mortgage, claiming Peter breached his fiduciary duty to his mother by executing the mortgage to himself by himself, acting as guardian for her.

The probate court dismissed Joshua’s claims for lack of standing, but required Peter to provide accounting for the costs claimed. The court found that Peter’s claims were justified and reasonable. Peter’s claims included the costs of litigating Joshua’s contest. Due to the added expense of litigating Joshua’s claims, the estate was then depleted.

At appeal, the court determined that Joshua lacked standing because he had no interest in his grandmother’s home during her lifetime. The transfer of the home was to Sheldon, not Peter, which avoided the conflict of interest claimed by Joshua. Sheldon was the party that had an interest in the home and only he could have challenged the mortgage under the circumstances. Instead of disputing the mortgage, he continued to live in the home and benefited from the transfer until his death. Peter paid many expenses relating to the home while Sheldon resided there, including utilities, taxes, and maintenance on the home. The court agreed that Peter had provided sufficient evidence of those expenses.

Joshua then argued that the costs of litigating his claims were not related to Peter’s administration of the estate, but towards Peter’s collection of the debt owed to him. The court disagreed. It found that the terms of the mortgage included the legal fees relating to Joshua’s challenge of the mortgage, and would reasonably be added to the principal. Thus, the fees due to Peter included those from the proceedings Joshua instigated as well.

Our Lesson

It is not unreasonable for a person to expect repayment for costs incurred on behalf of another. In this situation, it seems that a loving son and brother expended his own personal resources to provide for the care and well-being of his mother and sibling. Being the prudent person he apparently is, he protected his monetary extensions through a well-worded mortgage on the only asset available. While it may feel questionable that he executed the mortgage to himself in his mother’s name, looking at the bigger picture, it was evident to the court that his intentions were logical and actions justified. Thoughtful preparation is always a critical part of client satisfaction, and New Jersey has given us another useful option for asset reclamation, particularly when care continues to be provided and the time for repayment is too far down the road to see.

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