A parent who wants to leave children a home or the proceeds from the sale of the home, needs to think long and hard about whether or not those children have any financial issues that will get in the way of their inheritance. For instance, consider the issue facing a family when a mom dies and leaves her home to three sons when one of the sons has a child support judgment pending. In a simpler situation, the executor would hire an attorney to have the deed retitled in the son’s names and they would take possession, deciding what to do with the property. However, in this case, the executor and the sons are going to get some bad news.
nj.com’s recent article, “What child support judgment means for inheritance,” explains that judgments can complicate things. A judgment for child support is a lien against an inheritance, and that lien has priority over all claims other than taxes owed by the estate.
Typically, an executor must conduct a child support judgment search before making distributions to a beneficiary. If a child support judgment is outstanding and is greater than the inheritance to be paid the beneficiary, the executor must pay the entire amount to partially satisfy the judgment.
If the inheritance is more than the child support judgment, the executor will pay the judgment amount owed and when he or she gets a satisfaction of judgment, the balance will be distributed to the beneficiary.
Executors usually are given some leeway to pay property in kind. This means that they can distribute the house to the three sons as the beneficiaries or liquidate the property and distribute it in cash. However, when distribution in kind isn’t an option, liquidation may be the only option.
If this type of situation is one you are facing, speak with a knowledgeable estate planning attorney. This is because it may be possible to avoid liquidating the house, depending on additional facts and the amount of the outstanding child support judgment.
One option is for the two other sons to lend the third son the funds to pay off the child support judgment and in return take a larger share of the house or other security for repayment. That way, the house wouldn’t need to be sold.
Once the child support judgment is paid off, and a new search shows no outstanding liens, the house could be distributed as the parties agreed.
Talk with your estate planning attorney, if any of the people you wish to list as beneficiaries have financial problems that include a judgment now or who may face such an issue in the future. There may be some options, including using trusts, to recognize and protect your wishes (testamentary intent, in legal parlance) and to protect your beneficiary. This is an issue that is best addressed in advance.
Reference: nj.com (February 21, 2018) “What child support judgment means for inheritance”