Use of Estate Assets

This week we wanted to draw your attention to an interesting case decided in the Broome County Surrogates Court wherein the Court analyzed whether an Executor could utilize Estate assets to pay the existing mortgage on a parcel of Real Property that was left to the decedent’s minor children by way of a Specific Devise under the Will.

The Court, in reliance on New York’s Estates, Powers and Trusts Law (“EPTL”) Section 3-3.6 (“Encumbrances on property of decedent…”), held that the property was to be transferred subject to the existing mortgage.
The relevant facts of, as well as a link to, the case are set forth below.

Under Subdivision (a) of EPTL Section 3-3.6, “[w]here any property, subject, at the time of decedent’s death, to any lien…is specifically disposed of by will…the representative is not responsible for the satisfaction of the encumbrances out of the property of the decedent’s estate, except as provided in SCPA 1811 [“Payments of debts and funeral expenses”], unless, in the case of a will, the testator expressly or by necessary implication indicated otherwise. A provision in the will for the payment of debts is not such an indication.”
In Matter of Pejo, 2022 NY Slip Op 51280, decided November 4, 2022, in the judicial settlement of the Executor’s accounts the Guardian ad Litem for the minor children of the testator’s deceased son, who are distributees under the Will, objected to the payment from assets of the Estate of the mortgage on specifically devised property. The Guardian ad Litem asserted that the property should be transferred to the specific devisee subject to the mortgage. The Surrogate’s Court, Broome County, disallowed the payment of the mortgage from funds of the Estate. The Court directed the Executor to provide the Court with the amount of real estate taxes and insurance paid so that those amounts could be “separated from the amount paid on the mortgage”, allowing the Court to compute the final distributions under the Will. According to the Court,
“The statutory presumption that specifically devised real estate is subject to an existing mortgage is established and well settled law…The application of EPTL 3-3.6(a) to this specific gift of real estate is clear. The devise is subject to the mortgage in place at the time of the decedent’s death, unless in his will, [the testator] ‘expressly or by necessary implication indicted otherwise.’ The Will does not expressly provide for payment of the mortgage. The issue is whether the language of the Will creates a necessary implication that the mortgage be paid…On the record before it, the Court finds that there is no such necessary implication.”

This decision is posted at https://www.nycourts.gov/reporter/3dseries/2022/2022_51280.htm