Almost every estate comprises tangible personal property (TPP) that will be subject to division and distribution. Some TPP may be distributed by list disposition. Some may be donated under a charitable bequest. Other items may be divided pursuant to a general bequest among a class of beneficiaries. While other items may be sold with proceeds distributed as part of the residue. Regardless of the devise, the value, methodology, mechanism and power to resolve disputes as well as the potential tax consequences attendant to the TPP merit consideration. Even the location of the bequest and whether it’s considered a specific bequest or a general bequest can have significant implications as to whether the bequest will ultimately be satisfied, especially if the estate is illiquid, or the potential for exercise of a statutory election exists, because of the order that bequests abate.
Battles over the “stuff” have made the headlines. Remember the battle over Robin Williams’ personal belongings? But these battles happen all too frequently in estates both big and small. Hurt feelings created during the division of the TPP and inter-family litigation over an estate can cause irreparable rifts in the family. Not every battle can be avoided, but planning and forethought may avoid some.
Consider the following illustrative scenarios.
Husband and Wife’s (H and W, respectively) estate plan leaves the TPP to the survivor, subject to list disposition. No list is ever prepared or found. H survives and remarries. He’s in possession of W’s jewelry, family heirlooms, family photos and historical family documents. H dies survived by W2. H’s estate plan continues the same provisions (all TPP to W2, subject to list disposition, and if she doesn’t survive equally to his children who survive him). The children from H’s first marriage may be upset to learn that W2 is receiving items that had been their mother’s or accumulated during H’s marriage to W. Things can be further complicated if W2 and the children aren’t on good terms. Even if H specifies that he wants certain items to go to the children, W2 may claim H gifted some of those items to her during their marriage and argue that those specific bequests should be adeemed because they were no longer H’s. Could these issues have been avoided? Perhaps. Consider a specific bequest of sentimental items that one spouse may wish to keep in the family on the death of the first spouse. W could have provided that some of the items go to the children on her death. Clearly, a discussion at the planning stage might identify issues so that proactive planning might avoid future disputes.
What Constitutes “Equal”?
Grandma prepares an estate plan and specifically provides for certain special items to go to each grandchild. Grandma thoughtfully tried to provide each grandchild with an item that had specific importance to the family’s history. The balance of her TPP is to be divided equally among her then living children. Over time, she starts to declutter or downsize. She gives items away. She forgets that she listed that items are designated to go to a different person in her estate plan. By the time grandma dies, some but not all of these special items have been gifted away to grandchildren different from those delineated in the estate plan. While some grandchildren still receive special items at her death, others receive nothing. Hard feelings arise. The children also fight over what “equal” means. Is it equal in value or equal in number of items? Clear drafting might avoid these battles. We generally reflect that an item specifically devised but that’s no longer owned at death lapse. Consider including a provision that permits a grandchild to select another item of sentimental value (not to exceed $X in value) if their bequest would otherwise adeem and specify how equality is to be achieved.
Dad has a valuable art collection. When he prepares his estate plan, he provides for specific devises of various paintings among his children. Other works are directed to be sold or donated. The residue is to be equally divided. Initially he thought each child was getting art that was approximately equivalent in value. Over time, some works appreciate more than others such that a significant disparity in the values of those works (perhaps in the millions) exists by the time he dies. Perhaps a valuation and equalization clause might soften the blow and avoid an unintended disproportionate division of his estate among his children. What if in addition to the disparity in value, Dad’s will indicates that all taxes are to be paid from the residue. Not only will some children receive a disproportionate distribution based on the value of the art, but children who are already receiving less will also suffer the tax consequences of the disparity. When valuable tangible property or a disproportionate division may occur, consider whether an equitable apportionment clause or use of the state’s default apportionment provisions results in a more equitable distribution than a “pay the taxes from the residue” would provide. We generally exempt generation-skipping transfer tax (GSTT) out of apportionment provisions—allocating the tax consequences related to TPP over a specified value might also be appropriate in some circumstances.
Joe is a professor in a university art department. He has no close living relatives. He has passionately collected pottery. He wants to leave his vast collection to the university but also wants to restrict the bequest to display in the university’s museum. As part of the planning process, it’s important for Joe to discuss his plans with the university. It may not want all of the collection and may have no desire to display pieces it accepts. The university’s position may affect Joe’s plan. In fact, after speaking with the university, Joe decides to limit the bequest to certain pieces over which an agreement is reached. Joe is then able to make other plans for the remaining pieces.
Planning Is Key
With disputes over the division of tangible personal property reportedly ranking as one of the top three causes for disputes in the administration of a decedent’s estate, giving due regard to planning for its disposition merits taking the requisite time in the planning stage to garner an understanding of the client’s possessions, desires, family dynamics and issues that might arise in its management, division and disposition.
Sandra D. Glazier, Esq., is an equity shareholder at Lipson Neilson P.C., in its Bloomfield Hills, Mich., office. She was also the 2019 recipient of Bloomberg Tax’s Estates, Gifts and Trusts Tax Contributor of the Year Award and Trusts & Estates magazine’s Author Thought Leadership Award and has been awarded an AEP designation by the National Association of Estate Planners and Councils. Sandra concentrates her practice in the areas of estate planning and administration, probate litigation and family law.