A decedent doesn't always leave assets to his or her heirs - instead there may only be a pile of debt.  An estate is known as an "Insolvent Estate" when its liabilities exceed its assets.  What to do in that situation?

When determining if there are any assets that will pass to heirs, it is first important to understand that certain assets in New Jersey are excluded from satisfying a decedent's debts.  There are special categories of assets, such as retirement plans (IRA, 401(K), 403(b)) and life insurance, that are exempt from the claims of creditors under state law in New Jersey. Accordingly, there could be beneficiaries of a 401(k) plan and a life insurance policy who will receive assets as a result of the decedent's death, but creditors will go unpaid because there are not sufficient assets outside of the retirement plan and life insurance to satisfy the decedent steps. Look to NJSA 25:2-1 regarding the exclusion of retirement plans, and NJSA §§ 17B:24-6 regarding the exclusion of life insurance.  See here for a great guide of creditor protection for life insurance in all states.  One important caveat is that if the "estate" is the named beneficiary of the retirement plan or the life insurance policy, then the proceeds will be available to satisfy the claims of creditors. Therefore, to get the benefit of creditor protection it is important to name a person or trust as the beneficiary of that asset, and not the "estate".

The next question in this case is if the person is named as the Executor under the Will wants to take on that role under the Will. If there are no assets that are distributable to heirs, and the Executor is only going to be acting for the benefit of creditors, the Executor may be concerned about taking on that role and liability.  Remember, being named as a Executor is only a nomination to that role – the Executor is free to decline for any reason.

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