Years ago, we had a probate estate in which the final distribution of a few hundred thousand dollars was held up over a dispute involving which of three sisters would get the cuckoo clock that hung over the family’s kitchen table. In most estate/trust contests, mediators will do everything they can to avoid having the disposition of tangible personal property involved in the settlement. Money is money, but heirlooms and memories can cause beneficiaries to think and act drastically differently. While these items typically do not have significant monetary value, they have significant emotional value. To make administration go smoothly, it is still important to consider disposing of tangible personal property as part of the overall estate plan and not simply “gloss over” those provisions.
“Tangible personal property” is typically a defined term in a will or trust. The definition generally includes property that can be touched or felt (e.g., vehicles, furniture, furnishings, clothing, jewelry and household items). Depending on the size of collections and relative value, the definition can also include art, antiques, and stamp, coin or other collections. Typically, however, the definition of “tangible personal property” excludes property primarily held for investment purposes or property held for use in a trade or business, ordinary currency, and cash or precious metals.
In Indiana, tangible personal property may be disposed of by an informal written memorandum, which is then incorporated by reference into an individual’s will or trust. To incorporate such a written memorandum into a will or trust, the writing must (1.) be referred to in that instrument; (2.) be signed by the testator or settlor; and (3.) refer to the items and beneficiaries with reasonable certainty. Indiana Code § 30-4-2.1-11; 29-1-6-1(m). Such writing may be prepared on or after the execution of the will or trust and may be changed by the testator or settlor after the writing is prepared. Id. A writing simply stating, “Grandpa’s clock goes to my grandson Tom Smith,” signed and dated by the testator or settlor, is sufficient.
Creating the memorandum only works if the memorandum can be found. If the client wishes to complete a written memorandum, it is good practice to advise the client to keep it with their estate planning documents or to provide a copy to their appointed personal representative or the attorney who prepared the documents. If the client wants to make changes to the memorandum, an entirely new document should be created, signed and dated and the old one should be destroyed to avoid any confusion about which document controls. Additionally, the will or trust referencing the possibility of a memorandum should limit the time in which such a written memorandum needs to be found in order to be effective. That way, the personal representative or trustee is not required to search for the instrument indefinitely, and an orderly and timely disposition of property can be had — common time frames range from 30-60 days from the date a will is probated or 30-60 days from the date of death of a settlor of a trust.
Even if a client completes a written memorandum, there will likely be property left out of that document, or no written memorandum at all. Because of this likelihood, practitioners should also include a general disposition of tangible personal property in the will or trust. Language discussing distribution of tangible personal property to several beneficiaries should anticipate disagreements and include a procedure for addressing the same. Some examples include language allowing the beneficiaries to draw lots to see who choses an item of tangible personal property first, second, third, etc., then continue to circle through the list, or the beneficiaries who selected first should go last in the second round, or a progression from round to round. Practitioners can also consider adding a bidding process by giving all beneficiaries a certain number of “points” they can apply toward various items. Or, the end-all, simply letting all items go to auction and allowing the beneficiaries to bid on items with the general public, especially if the items are valuable and cannot be easily divided. Finally, a provision allowing a personal representative or trustee to donate items not selected or wanted by any beneficiaries should be included.
No matter how the items are divided among beneficiaries, practitioners should also consider the relative value of the items that each beneficiary receives. This protects against one beneficiary having “emotional attachment” to all the expensive antiques. Typically, this can be done by requiring an appraisal of all the tangible personal property and attaching the appraisal value to each item selected. Then, prior to disposition of the residuary, an equalizing distribution can be made among the beneficiaries. For example, if one child takes $4,000 worth of tangible personal property while another child takes $1,000, the makeup provision would require an equalizing distribution of $3,000 to the one child prior to the final, equal distribution of the residuary.
A few other items to consider when disposing of tangible personal property:
• If beneficiaries are all over the country or world, consider addressing how shipping, packaging and delivery expenses for items of tangible personal property will be handled. Typically, the items are treated as an expense of administration, but it is better to include specific language on these expenses in the instrument to avoid uncertainty among the beneficiaries.
• If items of tangible personal property will be insured, consider specifically mentioning that the rights to those insurance proceeds related to such items of personal property will pass to the beneficiary mentioned in a written memorandum, will or trust.
Practitioners often spend little time with clients discussing the disposition of tangible personal property in an estate plan. Spend some time in that discussion, as some clients treat the cuckoo clock just as important as the savings account. More time should be spent discussing the various options available to clients to dispose of those family heirlooms.•
Rodney S. Retzner is chair of the Estate Planning and Administration Practice and Micah J. Nichols is a partner at Krieg DeVault LLP. Opinions expressed are those of the authors.