Ask The Attorney: Father passed away with a house loan "way upside down". What do we do?

Dear Ask the Attorney:

My dad passed last week.  My mom died five years ago.  It is me and three sisters.  His house has a loan way upside down.  He only had life insurance and household items.  What is an easy solution?  I want to try to keep my sisters from fighting.

-CS

Our guest blogger is Christopher J. Roman, Esq.  Chris is an associate
with Einhorn Harris and a member of the Trust and Estate and Taxation Departments.  He is currently pursuing his LL.M in Taxation from Villanova Law School in Pennsylvania. 

Hi CS:

I am sorry for the loss of your father.  It is difficult for families to go through the grieving process, and I certainly understand your desire to keep your sisters from fighting.  Without more facts, it is difficult to provide a specific solution to your issues, but here are two questions I would ask to get you started:

First, did your father have a Will?  If he had a Will, then he likely named an executor and directed the distribution of his assets (except the life insurance, I’ll discuss that below).  If he named an executor, then that person should probate the Will with the surrogate of the county where your father resided when he died.  The executor would be responsible for gathering your father’s assets and distributing them in accordance with the terms of the Will.  You mentioned that the house is "upside down", so there may not be any assets to distribute, and the estate may be insolvent.  In that case, the estate would go through insolvency proceedings, which would require a court filing.

If your father did not have a Will, then either you or a sister of yours should contact the surrogate and request to be named the administrator of the estate.  Your other siblings would have to consent to that sibling being named as the administrator. Without a Will, your father’s estate would be considered an intestate estate, and the New Jersey intestacy statute would govern the distributions. 

Second, who are the beneficiaries named on the life insurance policy?  A life insurance policy with a named beneficiary is a “non-probate asset.”  That means that the proceeds from the life insurance policy are distributed according to the beneficiary designation, and are not governed by the Will or the laws of intestacy.  The proceeds from the policy are also unlikely to be subject to the claims of creditors.  The proceeds of the policy simply pass to those individuals named on the beneficiary designation in the amounts set forth. 

This is a good example of why it is important to have a Will and properly completed beneficiary designations.  An effective estate plan allows an individual to set forth directions for after his death.  These directions help to avoid conflict among his or her heirs.

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