The recent New Jersey case of Estate of Bertha Polak is another good illustration of differing viewpoints among family members about the terms of intrafamily loans and whether there is an obligation to repay. This case arose during the estate administration process. This is an unpublished decision of the Appellate Division, meaning it isn’t precedential, but it gives the reader a good look at what the obligations are when the lender dies and the borrower disputes the alleged loan.
Polak lived with her daughter, Linda Hall, in Hall’s house. Polak paid rent of $1,000 a month to Hall. At some point, Polak took out a loan in the amount of$79,784.28, secured by a mortgage on some other property that Polak owned, and gave the funds to Hall. Polak kept $10,000 of the loan proceeds and gave the rest to Hall. Polak began making the mortgage payments of $922.93 to the bank, but ceased paying rent to Hall. Polak’s Will made mention of the “loan.” In fact, it said: “At the time of the sale of the property Linda Hall shall be responsible for repayment of this loan. The total amount shall be paid back to the [e]state and this amount shall then be added to the proceeds of sale and be divided amongst my children, Carol, Lisa and Linda and the surviving children of my daughter Andrea.”
After Polak died, Hall was the Executrix of the Estate and attempted to characterize the loan as a prior gift to Hall that did not require repayment on her part. A legal action was filed by other heirs to the estate. Eventually, the case was tried and judgment was entered against Hall, not only ordering her to repay the loan but also depriving her of her Executor’s commission. Another issue, of course, was whether Hall could simultaneously represent the Estate (as Executor) and herself (as borrower who was trying to avoid her obligation to the estate). But that is a subject for a different day …
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