Planning for the Distribution of Non-Financial Assets: Avoid (or Minimize) Family Disarray
April 25, 2019
Bequeathing tangible personal property, such as art, furniture, books and collectibles is accomplished through a last will and testament. Often, wills leave assets outright to the surviving spouse and then to the children to divide. Experience suggests it isn’t necessarily assets of monetary value that are most desired.
With non-financial assets, everyday objects of sentimental value can become contested belongings. Many parents admit to worrying about the sibling rivalries this process may stir up. Yet, uncertain how to confront or resolve these issues, many tend to simply hope the best will occur when the time comes.
Although it’s not strictly legal or financial advice that’s needed, these issues can significantly impact the well-being of our clients’ families. We can help prepare clients for a positive family transition, especially with regard to the non-financial assets and have found the best resolution comes from proactive family discussions during a parent’s lifetime.
Open the Dialogue
We encourage clients to talk about non-titled assets, or items other than real estate, business interests, deposit accounts, marketable securities or retirement accounts. These discussions provide an opportunity for families to share the meaning of items inherited from prior generations or which have particular significance to the client. Following this conversation, we can provide guidance when determining who will inherit what.
We can also provide a “reality check.” Consider a couple, well in their seventies, with an apartment in Paris, a house in Boston, and a vacation home, each frequented with their children and grandchildren. Fortunately, effective transfer techniques will protect their daughters from the specter of any future forced sales to pay estate taxes, and division of the properties has been built into the estate plan. Their daughters, however, each have homes of their own with growing families to anchor them, and it is unclear if the daughters will have sufficient means to support these properties, let alone the interest to use them when their parents have passed. As a result, is the intended simple equal division of the contents of these homes, amassed over many years, realistic? Is it reasonable to expect that the daughters will have the time and energy to go through it all after their parents pass? Is it even fair to them, particularly when there is some history of occasional disagreement and even jealousy between them?
Holding advance conversations provides an opportunity for the parent to confirm an heir’s interest or ability to accept an object. Life today is complicated and fluid, and one person’s beloved collection or possession can quickly become another’s albatross. By proactively airing these issues, a family can reset misassumptions and pave the way for realistic and cherished bequests.
Discuss Legacy & Decide During Life
When decision-making occurs during a client’s lifetime, there is opportunity for storytelling as well as confirming that the recipient wants the object and has a place for it. The conversation doesn’t necessarily have to go into specific objects, but can be directional about how the client would like distributions to occur after her death. Scratching below the surface, most clients have a specific vision of how their heirs will divvy up their belongings—“I know my art books will go to my granddaughter.” Further, clients likely can predict the rivalries and behaviors of their children, even if they choose not to confront these issues, and often don’t want to admit to worrying about the rancor a certain division will cause.
It is also increasingly important for clients to discuss their wishes should they become incapacitated: will a child or an advisor, pursuant to a Durable Power of Attorney, become the primary decision-maker? What items should be sold, if any, to raise funds for care? It is important for advisors and/or family members to encourage clients to engage in these conversations with caregivers before incapacity occurs.
Approaches for Lifetime Decisions
- Sell a collection. Already knowing the dealers, selling points and even potential buyers, the person(s) who initially compiled a collection is likely best positioned to manage its sale. For example, an avid book collector took it upon herself to negotiate the gift of her collection to a university library, a feat her children could never have accomplished. The act brought the owner enormous pride and eliminated the burden to her children of determining what to do with a relatively obscure but potentially valuable collection.
- Identify in writing. Although a Letter of Instruction may not be legally binding under each state’s applicable law, such a document, signed by the client, makes clear the intended recipient of an item.
- Heirs pre-select items. Some families place color-coded stickers on the underside of objects to identify who will eventually receive the object.
Dividing Assets After Death
In most estates, after the executor is appointed, the titled assets are marshaled, the appraisals are completed and, perhaps, a contract on the sale of the residence(s) is signed. When it’s time to divide up the non-titled assets that aren’t specifically bequeathed, the executor and family members turn their attention to cleaning out the decedent’s house and focusing on the remaining contents. This puts aside questions of inventory and valuations and considers the distribution of tangible personal property.
A first question is whether the remaining tangible personal property has individual appraisal values or is, instead, grouped together as “miscellaneous household furnishings.” If the former, then a consideration in dividing up the assets will be to reconcile the piles so each heir receives assets of an equal value. If the latter, then it’s not a factor for legal purposes, although heirs may perceive it to be a matter of equity or fairness.
Next is the all-important question of how the heirs will choose select items. In the experience of most advisors and executors, there will be items wanted by all. The items may have monetary value or may be of sentimental value; nevertheless, they will be deemed “priceless.” Families have in the past found the following methods useful:
- Heirs make a list of preferred items and an objective, outside party reconciles the lists. Some families coordinate their lists with relative ease. For others, the third party may need to sponsor brokering, negotiations, bartering or, as was the case in one instance, threaten to sell the items if the family can’t reach an agreement.
- Draw straws to determine selection order. Straws can be re-drawn with each selection round. Once an order of selection has been fixed, and the first round completed, the second person begins round two; the third person begins round three; and so forth until all the assets have been dispersed.
- Hold a family auction. Using play money subject to an agreed-upon budget, heirs bid for each object, with the highest bidder winning. The auction can be live or silent. Heirs can agree to trade or swap items once the process has been completed.
The best outcome for all—heirs, clients and even advisors—is when a family appreciates their legacy, preserves the memories, successfully divides up the non-titled property and maintains their relationships for years to come.
This material is intended to be a review of issues or topics of possible interest to Glenmede Trust Company clients and friends and it is not personalized investment, estate planning, tax or legal advice. Advice is provided in light of a client’s applicable circumstances and may differ substantially from this presentation. This material may contain Glenmede’s opinions, which may change without notice after date of publication. Information gathered from third-party sources is assumed reliable but is not guaranteed. This publication may not be used as legal or tax advice.