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Distributing Collectibles and Personal Property
By: Martin M. Shenkman, CPA, MBA, JD
Money Matters Radio – Estate Planning Checklist
Bequeathing Art, Collectibles and Similar Assets
Lawyers call it “tangible personal property” but many heirs call it “a fight!” Making bequests of your coin collection, family heirlooms, grandma’s china and similar property should be a positive step of passing on a legacy and memories. Too often it becomes a remake of the old TV show, “Family Feud”.
Consider the following items?
√ It Ain’t Only About Money: Distributions of tangibles has much to do with inter-personal relationships.
√ What Factors Matter?:
Reactions and issues depend on type of property. People view guns, versus art, etc. differently.
Differences exist between genders on how this is handled.
Some people feel if they gave an item to decedent they should get the item back themselves.
If property is left to two children and the issue of a deceased child the relationships between the generations can vary substantially. Younger generation may be viewed differently by older generation and this can create conflicts.
√ Son-in-Law Trouble:
What do you do about spouses of beneficiaries.
Many people feel strongly that if it is to be divided up in person spouses of heirs should not be present for this since it may create more issues.
This is particularly true of some beneficiaries don’t have spouses and others do and there is a feeling of the couple ganging up.
When beneficiaries are not descendants, e.g., nieces and nephews, they may not know each other which can change dynamics and they may have very different relationships with each other.
Consider each beneficiary’s perception of fairness to keep the peace.
Are beneficiaries motivated by monetary gain or personal wishes for property. Does Junior really want grandma’s china because of childhood memories or is he looking for the value of the antique china? Or perhaps he doesn’t care a hoot but just wants to make sure Sis doesn’t get it!
√ Who Calls the Shots?:
What if children are in litigation with each other. May need a referee to divide property.
Spouses with multiple marriages and dies there could be children from one or more previous marriages and the current marriage and they may not get along well. One spouse dies and may leave to surviving spouse who cuts out deceased spouse’s children.
If a beneficiary is an executor and charged to divide property you have a conflict in the role of an executor trying to be fair and the role of beneficiary.
√ Should Heirs Meet?:
The most direct and simplest approach IF it is workable is for the heirs to meet.
Consider having an independent company list all property before the meeting so they have details and values for everything.
Geographic issues may make this impossible. It’s becoming more common for the executor to circulate photos or post digital photographs on a family website.
√ Avoiding the Hatfield’s and McCoy’s:
The people involved need to really deal with the real issues. If there are hostile relationships, especially in second and later marriages they will have to be addressed.
Involve and coordinate all relevant people. Try to foster cooperation between the parties.
Remember the old maxim: “An ounce of prevention is worth a pound of cure.”
If the decedent knows or anticipates an item will be a problem perhaps they can document a specific bequest of that item that would otherwise be in issue and it will avoid the problem. Example: There is one vintage motorcycle and each of the grandson’s want it. Make a specific bequest of it to one named person.
√ Side Letter of Instruction to Distribute Property:
Consider preparing a side letter with details.
28 states permit a side letter to dispose of tangibles. Many states require that it be dated and in existence when the will is executed.
More than a dozen permit an evolving letter that can be updated anytime. The advantage of an evolving side letter is you can include statements of wishes concerning personal property (e.g., why you divided it the way you did).
22 states that don’t permit a side letter to a will, such as Illinois. In these states you might complete a side letter to a revocable living trust. This might avoid the statutory restriction on the use of side letters with wills in those states.
If the side letter is non-biding the fiduciary (executor or trustee) may still feel a strong moral obligation to follow the instructions.
If details are written it may avoid/minimize tensions and arguments.
Side letters can be beneficial or problematic. Most attorneys believe a side letter is best if in testator’s own handwriting and if it includes statements as to why they are dividing assets in the particular manner that they choose. This is information that would not normally be included in a will.
Issues and conflict can be created by side letters. Was the person competent when they signed it? Did they have sufficient mental capacity to make a binding letter? Was their undue influence at the time?
Delaware permits a list of tangible personal property. When the list concept was developed you are only speaking of insignificant household contents but it can really include very expensive art, etc. So the fact that a law permits a side letter doesn’t make it necessarily advisable.
√ What Not To Do:
Whatever is done, don’t ignore the issue.
Many wills provide that if children cannot agree item is sold. This could be a tragedy to sell a family heirloom. This might also give the one difficult family member the ability to destroy a family legacy. Is this really what anyone wants? Must discuss how to break up property if heirs don’t agree.
You can leave the decisions as to how to distribute personal property up to the executor but this is tough as it may alienate the executor from the other heirs.
√ Ways to Divvy Up Personalty:
E-divvy up. Give each heir “points” and have them bid at a silent auction on the properties. This enables each heir to try to get what they really want. For example, if you have an independent company list and appraise all personal property, give each heir the total number of points that corresponds to the dollar value of all tangibles. This way, each heir is on equal footing.
Consider drawing lots.
Consider a silent auction, with one bid each heir.
Consider a rotational selection system. Example: Oldest picks first down to youngest. Then for round two youngest up to oldest.
Should this be done in aggregate or by category?
If children of different gender it could be a problem.
How are inequities made up (e.g. out of residue) or should they be? Should cash be paid to equalize?
Having cash equalization causes heirs to be serious about what they are getting.
Issues of having to value the assets to equalize with cash which can be costly or problematic.
√ Other Tips and Issues:
Consider an independent appraisal of all personal property.
Don’t put heirs in the same room if they don’t get along.
Ask heirs to prioritize what they would like.
Per stirpes versus per capita.
Shipping and insurance costs should be considered. Who bears and how will this influence decisions.
Consider and plan for digital estate planning.
This can be very emotional.
Example in Time Magazine. Memories on Facebook. Very emotional. All pictures are on line at snapfish, etc. These are all password protected. May be inaccessible without a court order to get the password.
Legacy locker. New concept to store passwords in a safe manner.
Religious and cultural issues may impact what is done.
Planning for personal tangible property sounds seductively simple and it affects everyone. But the common presence of this matter belies the unbelievable complexity, substantial problems and family rifts it can create. Planning is really critical.
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