Handling Personal Property in Your Estate Plan
If you have ever had to participate in the administration of the estate of a loved one who has passed on, you know that one of the hotspots for potential disagreement is the tangible personal property. Tangible personal property can generally be defined as property that can be seen, felt, or touched. While some personal property may appear to be tangible, such as a stock certificate or a dollar bill, they are actually intangible as the paper is just a representation of the property. Other examples of tangible personal property would include cars, equipment, household goods, guns, jewelry, artwork and the like. One of the reasons tangible personal property can become such a hotspot for disagreement is that it is difficult to divide an item amongst multiple people and there is often an emotional attachment to the item, even if it has no economic value.
In estate planning, we have two types of gifts - specific gifts and residuary gifts. A specific gift is a gift of a specified item to a specified person or persons. An example of a specific gift is Tom gets my car. A residuary gift is how everything else gets divided. For example, each of my children shall get 25% of the balance of my estate. Most assets will fall into the residuary and just be divided amongst the residuary beneficiaries on some percentage basis. When items of tangible personal property fall into the residuary, it is left to the beneficiaries to decide how items will get divided and this can lead to disagreement and sometimes court. While this is always bad, it is particularly problematic when the personal property that is being disputed does not have much economic value.
A better approach is to set forth in your estate plan who you would like to see receive specific items. This can be done by listing out the items in your trust or will, or if allowed in your state, filling out a Personal Property Memorandum (PPM). If you list a specific gift of personal property in your will or trust, when you change your mind you will need to amend that document. If instead you use the PPM you can simply get rid of the old PPM and create a new one.
So, if your state allows for a PPM or even if it doesn’t, these are some good rules for dealing with tangible personal property:
Talk to your family or other beneficiaries about what items they may want. If only one person wants an item, it makes sense to give it to that person.
Be upfront about who is getting an item. Moms and Dads do not want to upset their children, so they may tell several people they are getting it, or say “we will let you decide.” In estate planning, surprises are generally not a good thing. If you don’t want to decide, leave it to the residuary. If you do, then own the decision and let your children know.
If you sell. give something away, or otherwise get rid of the item while you are alive, update your planning. Again, surprises are bad. If your plan says that Suzy gets the gold ring, but there is no gold ring, Suzy may think that someone else took it and bang, we have conflict..
Don’t inventory all of your tangible personal property. Your family will not be able to absorb all of your tangible possessions. Some of it will be sold. Some will be given away. Some of it will go to the junkyard. Focus on items that people may want - refer to Rule No. 1 above.
If you are going to leave the personal property to the residuary and let the children decide, consider adding directions in your plan about how that process should look. It could be drawing straws to effectuate a round robin 1-2-3-4, 4-3-2-1 or 1-2-3-4, 1-2-3-4 selection process. It could be bidding and purchasing out of the beneficiary’s share. It could be bidding with allotted points. However you decide, I would again refer to Rule No. 1 and engage the children in the discussion of what they think would be the best approach.
Remember, as with all estate planning matters, it is important to consult with a qualified professional who understands the rules of your particular state or country. For example, not all states allow for the PPM and those that do are not aligned on what can be included. So don’t try to go it alone. Get the help you need to avoid the costly consequences of poor planning.
This post is for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Nothing herein creates an attorney-client relationship between Hallock & Hallock and the reader.