Planning for Personal Property
Volume 3 • Issue 3 • March 2013
The Counselor is a monthly newsletter of Hallock & Hallock dedicated to providing useful information on estate planning, business planning and charitable planning issues. This month's issue will discuss ways to avoid family conflicts by planning for personal property. If you are interested in learning more about the ideas discussed in this newsletter please contact us for a free initial consultation.
When planning for an estate, Clients almost uniformly express their desire to promote family harmony and avoid conflict as the paramount goal. Thereafter, as the Client winds his or her way through the planning process considerable time is allocated to addressing the division of real estate, money, and brokerage accounts. While these items usually make up the bulk of an individual’s estate, experience has shown that these are not the items that cause a plan to fall short of this most important goal. The assets that often bring the most contention are those assets referred to as tangible personal property. This is especially true of heirloom property that may have little or no monetary value, but has significant emotional and sentimental value.
What Is Tangible Personal Property?
In legal terms, the property that we own falls into two general categories, real and personal. Real property refers to land and improvements that are attached to the land and not readily movable, such as a home or other building. Personal property is basically everything else. Personal property can be further subdivided into tangible and intangible. 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, stock and cash are actually intangible and the paper is just a representation of the property. Other examples of intangible property would include promissory notes and intellectual property, such as copyrights, patents or trademarks. Examples of tangible personal property would include equipment, household goods, guns, jewelry, artwork and the like.
The Personal Property Memorandum
While specific gifts of real property and intangible personal property must be set forth in the Will or Trust, the laws of most states allows for the disposition of tangible personal property by a separate writing that can be changed without revising the Will or Trust. This document is often referred to as a “Tangible Personal Property Memorandum” or “Separate List.” To be effective, the Personal Property Memorandum must be specifically referenced in your Will or Trust. A properly completed Personal Property Memorandum allows you to leave specific items of personal property to a specific individual. For example, you may state: “My wedding ring to my daughter Julie.” While the formality of witnesses or a notary is often unnecessary, it is necessary that you sign the Personal Property Memorandum. It is also extremely important that the Personal Property Memorandum be dated. The Personal Property Memorandum should be revisited regularly as items are lost, sold, added or replaced.
The Personal Property Memorandum provides an easy way to clearly convey your wishes regarding personal property. In preparing the Personal Property Memorandum, be careful to avoid undermining this planning by making contrary oral promises or labeling items in a manner that is contrary. In most states the Personal Property Memorandum will control over such contrary expressions, which, nevertheless, will lead to disharmony. It is also important to be clear in your description of items so items are not confused. For example, Great Grandma Smith’s family Bible rather than just the family Bible may be more appropriate if you own several Bibles. One effective way to supplement the Personal Property Memorandum is to provide photographs or video that will provide a more certain identification of the property.
What About the Other Stuff?
Often the Personal Property Memorandum does not include all of the items of personal property owned; therefore, it can be extremely beneficial to provide direction on how those items should be disposed of. While there is no right way to do this here are a few options:
The Trustee or Personal Representative decides how items will be distributed. This is really not a decision and could place this person in the difficult situation of having to decide between competing claims.
Distribution by auction. Using either real or virtual money, the children can bid on items, with the highest bidder prevailing. Usually, bids of real money are reducing the amount the child will receive from the balance of the estate. If the child’s own resources are to be used to purchase the assets, consideration should be given as to whether certain children are at an unfair advantage. When using virtual money, each child is given the same amount of pretend money with which to bid. When using this method, know your family as auctions can become competitive and potentially contentious affairs.
Distribution by lottery. This method provides that each child will be assigned a random number and have the opportunity to pick an item at their appointed term. However, if the process is repeated in the same order there can be a real economic disparity in the items available to the person with the first pick and the last. Therefore, it is helpful to reverse the order for each round. This can help “even things out.”
In most estates, after the distribution pursuant to the Personal Property Memorandum and after the distribution of the “other stuff” there will be additional items that are unwanted because they lack any sentimental value or financial value. Your Will or Trust should give your fiduciary the power to sell or donate such items as he or she sees fit.
As with so many areas of the estate planning process, communication is the key. Certainly one of the most difficult challenges exists where the item has been promised, through forgetfulness or otherwise, to multiple individuals. Therefore, while it is not necessary, and in fact may be inadvisable to discuss the contents of your Personal Property Memorandum, it is important that your children are aware of its existence. Solicit their requests and let them know you will consider each request seriously with an eye towards fairness for all.
While often overlooked and under planned for, tangible personal property often provides a battleground for protracted disputes among children. In planning your estate, give sufficient time and thought to this part of the plan and the likelihood of maintaining family harmony will be significantly enhanced.
This Newsletter 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.