Estate, Powers and Trusts, § 3-3.6: Encumbrances on Property of Decedent or on Proceeds of Insurance Policy on Life of Decedent Not Chargeable Against Assets of Decedent's Estate

When you make your will, you have the right to leave any property that is in your probate estate to whomever you choose. Typically, such property includes real estate, vehicles, jewelry, artwork and other collectibles, home furnishings, and clothing. Oftentimes such property is subject to some sort of an encumbrance such as a lien, and the testator did not satisfy the encumbrance prior to his (or her) death. This is particularly the case with real estate. Leaving a testamentary gift that is encumbered may present special issues for the executor during probate and for the beneficiary who receives such a gift. If you have concerns related to encumbrances on property of a decedent, contact an experienced New York probate administration attorney who understands complex issues related to testamentary gifts.

An encumbrance on property is anything that places a limitation on the property. Examples of encumbrances include a liens, mortgages, easements, deed restrictions, and licenses. An encumbrance affects the ability of the owner to enjoy the property in any manner he chooses. For example, if there is a lien on a house, the owner of the house may not be able to sell it without first do what is necessary to remove the lien.

It is not unusual for probate property to be subject to an encumbrance. For example, a testator may leave his daughter the family home and the home may still have a mortgage. The mortgage would be an encumbrance. Under New York Estates, Powers, and Trusts law, even though the executor of an estate is charged with paying all estate debts during probate, he or she is not required to address encumbered property unless the will specifically directs the executor to do so. Thus, the beneficiary receives the property subject to the encumbrance. This does not mean, however, that the beneficiary is under personal obligation to satisfy the encumbrance. If the testator left the encumbered property to more than one person, the encumbrance would be divided among the beneficiaries based on their proportionate ownership of the property.

Similarly, a life insurance policy may be subject a lien. As a New York probate administration attorney will explain, just like real estate and other property that may be subject to a lien or other encumbrance, if a life insurance policy is subject to a lien, the executor or estate administrator is not responsible for the satisfaction of the lien.

The exception to the general rule that the executor or estate administrator is not obligated to satisfy the encumbrance is in situations where the testator specifically states in his will that the encumbrance should be satisfied by the executor. In such a situation, the executor would be required to use estate assets to satisfy the encumbrance. A general directive in a will that the executor should pay all estate debts is not enough to place an obligation on the executor to satisfy the encumbrances on estate property. To learn more about how to handle encumbered property in an estate, contact an experienced probate administration attorney in New York.

1. What a testamentary disposition includes: Estates, Powers and Trust, § 3-3.1
2. Disposition to issue or brothers or sisters of testator not to lapse;  application to class dispositions: Estates, Powers and Trust, § 3-3.3
3. Consequences of partly ineffective testamentary dispositions of property to two or more residuary beneficiaries: Estates, Powers and Trust, § 3-3.4
4. Conditions qualifying dispositions;  conditions against contest;  limitations thereon: Estates, Powers and Trust, § 3-3.5

(a) Where any property, subject, at the time of decedent's death, to any lien, security interest or other charge, including a lien for unpaid purchase money, is specifically disposed of by will or passes to a distributee, or where the proceeds of any policy of insurance on the life of the decedent are payable to a named beneficiary and such policy is subject to any lien, security interest or other charge, the personal representative is not responsible for the satisfaction of such encumbrance out of the property of the decedent's estate, except as provided in SCPA 1811 , unless, in the case of a will, the testator has expressly or by necessary implication indicated otherwise.  A general provision in the will for the payment of debts is not such an indication.

(b) Any such encumbrance is chargeable against the property of the decedent or the proceeds of a policy of insurance on the life of the decedent, subject thereto.  Nothing in this § imposes upon a testamentary beneficiary, distributee or named insurance beneficiary any personal liability for the payment of the debt secured by such encumbrance.

(c) Where any lien, security interest or other charge encumbers:

(1) Property passing to two or more persons, the interest of each such person shall, only as between such persons, bear its proportionate share of the total encumbrance.

(2) Two or more properties, each such property shall, only as between the recipients thereof, bear its proportionate share of the total encumbrance.

If you are an executor, beneficiary or heir and are concerned about a testamentary gift that is encumbered, contact an experienced probate administration attorney serving New York who understands the nuances of New York estate law related to testamentary gifts that include encumbered property. The attorneys at the Law Offices of Stephen Bilkis & Associates have years of experience representing clients in complex estate matters including transferring ownership of encumbered property, estate disputes, and other complex estate matters. Contact us at 800-696-9529 to schedule a free, no obligation consultation regarding your case. We represent clients in the following locations: Nassau County, the Bronx, Suffolk County, Brooklyn, Staten Island, Long Island, Queens, Westchester County, and Manhattan.