Grandpa, who is going to get your fishing boat when you die?
Apparently my estate planning mind started early—at around age 6 or 7. After a beautiful afternoon of fishing with my grandfather on a rural Minnesota lake, I broke the silence of the car ride home with the most indelicate of questions. My grandfather not only laughed it off, but decided to reward my frank question by updating his estate plan to distribute the boat to me. In memory of that fine day (we caught our maximum allowance of sunfish, I am sure of it), and with all the fishing tackle being put to good use this summer, this month’s update provides a few thoughts related to the transfer of personal property.
In creating a plan for distribution, a client should identify whether personal property has utilitarian value, sentimental value, or both. A client should also identify whether the personal property would hold that same value (utilitarian, sentimental, or both) to their designated beneficiaries at death. In their book, Stuff: Compulsive Hoarding and the Meaning of Things, authors Randy Frost and Gail Steketee describe the different reasons for retaining “stuff.” In addition to the possibility that property might be useful to the property owner in the future, in some cases the mere presence of an item will remind the property owner of certain memories, memories that can only be retained by the presence of that particular item. In these cases, property that is not useful to a designated beneficiary, and has no sentimental value, can be disposed of following death.
In last month’s update, I summarized the importance of preparing a legacy letter. Among other functions, a legacy letter can serve to provide a narrative description of why certain property is of sentimental value. If clients can use such a narrative description to describe the sentimental value of an item, the surviving beneficiaries are far more likely to retain the possession of the item, and have it become sentimental to them. A client can also use this legacy letter to articulate why certain items are of ongoing sentimental value to the next generation (e.g., the history behind the family Bible originating from the 1860s). Other items may be sentimental only to the current owner, and not to the estate beneficiaries, and can therefore be sold or donated following death (e.g., clothing worn by a predeceased spouse but retained by a widow or widower.)
Here are a few common planning scenarios in which these principles can be applied:
- The “Post-It Note” Plan: Many of us know clients who placed post-it notes or colored pieces of tape on various items of furniture, paintings or family heirlooms as a means of disposing of those items at death. The intended beneficiary often does not receive the designated property, whether because the client moves, sells the item, or gives the item away. In these cases, it is important to determine whether the item itself is of sentimental value to the beneficiary, or whether the current owner only wished to provide an honorary gift to that individual. If the later, I will often include provisions in the client’s estate planning documents so that, if the particular item is gifted or sold during the client’s lifetime, the beneficiary receives a cash gift of a certain amount. In this manner, the client can be assured that the beneficiary is honored, not forgotten, even if the client herself forgets the plan with the property items.
- How Stepchildren End Up with Sentimental Assets. When a spouse re-marries after the death of his or her spouse, it is critical that the new spouses agree on a plan for the distribution of personal property following the first death as between them. Using this same distinction of sentimental vs. utilitarian property, I often recommend that the newly-married clients direct that sentimental property be distributed to the children of the deceased spouse, while the “utilitarian” property, the property that will continue to be used in the surviving spouse’s residence, be allocated to the surviving spouse. Of course, many items fit both categories, and therefore would create some difficult decisions. In any event, this framework provides a starting point for these married clients. Most families are agreed that it is best to avoid a situation in which stepchildren end up with sentimental property.
- Private Intra-Family Auction of Property. In deciding how to distribute property not distributed by a tangible personal property list, a sports-style draft pick system often works well. This is true so long as the tangible personal property items are of approximately the same value, and each of the beneficiaries has a similar sentimental connection to the items. However, if the beneficiaries have no sentimental connection to the property, and the property holds aesthetic or utilitarian value to a third party, it may be preferable to use a different methodology. With a private auction method, an outside appraiser determines the total value of the property, and then each beneficiary is given an allotment of currency within the intra-family auction to use to bid for items up for sale. The family could agree that if no one makes a minimum bid equal to the appraised value, then because the item does not have sufficient sentimental value, no one in the family should receive the item as part of the private auction. Instead, the item should be sold to a third party, thereby maximizing the cash value to the family.
If all else fails, clients can espouse the approach taken by King Sardanapalus, an ancient king of Assyria. As the Assyrian Kingdom was about to be overrun by another ancient kingdom, he ordered that all of this treasures be placed in a huge heap under him, and that he and his possessions be burned together so that these possessions would fall into the hands of the enemy. In contrast to King Sardanapalus, most of our clients have at least a few items they wish to pass to others. If the plan is properly constructed, not only can the property itself be passed on, but in some cases the sentimental value of the property can be passed on as well.