How Beneficiaries Can Change Who Gets What $$$
Written by Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a New Jersey Estate Planning Attorney
Unless a Last Will is the subject of litigation challenging it because of claims of undue influence or a failure to meet the formalities of content and/or execution required by law, a will probated by the Surrogate is intended to assure the transfer of a person’s assets to his/her named beneficiaries. Should there be no will, then the laws of intestacy govern. I have discussed these laws at length elsewhere on this site. HOWEVER, THERE IS A WAY FOR BENEFICIARIES TO GET AROUND THE LAWS! Interestingly N.J.S.A. §3B:23-9, allows beneficiaries of an estate to come to a written agreement between themselves to alter the distribution of an estate. This agreement like any other contract can dictate a different means of distributing the estate from what the will provides. It can even supersede the direct distribution of assets under the Last Will (or no Last Will), subject to some stipulations, and conditions precedent.
Alternatives to Litigation
The first stipulation is that when beneficiaries propose an agreement to modify a Will or the distribution formula of an intestate estate to the executor or administrator the beneficiaries must each be competent, meaning he or she must be of “sound mind” and understanding of the proposed agreement. The law presumes that those who enter into a contract are competent when they make an agreement. Since the law governing consensual agreements modifying a Last Will or Trust has not been the subject of much litigation (or legal discussion), the courts have not analyzed many of these agreements to determine if they are enforceable and because these agreements involve the probate of a will, they can be challenged by interested parties as being the product of undue influence, fraud, or coercion. This hasn’t happened yet, but it would be interesting to see if a court would apply the same legal reasoning it uses to decide a probate litigation case. I suspect they would.
If the agreement between beneficiaries is legally valid, the law states that the executor of the estate is bound by its terms. The single case to address this issue is the, Matter of Liss’ Will, which decided that an executor has no power to bring a lawsuit contesting the validity of an agreement between beneficiaries, and he/she must follow the agreement. Of course, while the law makes it clear that the executor is bound to the exact terms of the agreement made between beneficiaries he/she still has a fiduciary duty to pay death and inheritance taxes, debts to creditors and other obligations of the estate. If the agreement proposes to distribute property that frustrates this purpose or the rights of third parties, the executor may refuse to comply.
Finally, and most importantly, for those beneficiaries and potential beneficiaries who are not a party to the agreement, the law also provides that the agreement is subject to the executor’s obligation to provide for beneficiaries who may lawfully be entitled to the estate. In these situations, where an agreement may frustrate the vested or contingent expectations of future beneficiaries, it is a good idea for the executor to file an action with the Chancery Division of Superior Court to approve the agreement and/or in the alternative, to ask for the court for direction on how to settle all claims, debts, taxes, costs of administration and beneficiary entitlements. If the court determines it is valid, the executor is protected.
Are you a beneficiary or executor dealing with an issue(s) described in this page? If so, call our office today. Ask for Mr. Niemann and meet with him personally to discuss your questions and individual situation toll-free at (855) 376-5291 or email him at firstname.lastname@example.org.