Will? Updated. Advanced health care directives? In place. Insurance review? Done. Taxes and investments in good hands? Of course. Your clients’ affairs are in order. But, there’s something else still to be addressed. The couple is in their late 70s, and they live in their large family home (with all its attendant expenses). They’ve been lifelong travelers and have amassed a nice, but not museum-quality, art collection, and they have three children and numerous grandchildren. The children are what’s on your mind. While trusts are all in place for financial assets, you sense that the estate administration process may cause relationships among family members to come unglued over the objects, and you’re aware that this tension can cause family rifts that will last forever. This is an area not covered by laws. It’s not strictly legal or financial advice that’s needed, but it can have a huge impact on the wellbeing of our clients’ families. Advisors can help prepare clients for a positive family transition by addressing these issues.
Often, wills leave assets outright to the surviving spouse and then to their children to divide up. There may be provisions for paying shipping expenses, but, generally, there aren’t specific plans for how the heirs will choose objects that haven’t been specifically bequeathed. Experience also suggests that it isn’t necessarily assets with monetary value that are the most desirable—or contested. Rather, it’s objects with sentimental value particular to an heir, or even a desire by one heir to deprive another, perhaps a sibling, from receiving a specific item out of an historic rivalry. How can the advisor provide meaningful guidance in this context? To be clear, this article isn’t focused on valuable art collections or antiques that are separately appraised and specifically provided for in an estate plan; rather, this piece concerns the accumulation of “things” that most people have amassed over their lifetime, that will be divided up among heirs, sold to an auction house for very little money relative to what the family thinks they’re worth, given away, discarded or put into storage and left until the next generation cleans out the now-forgotten storage unit(s).
Open the Dialogue
First, open up the dialogue. Advisors can encourage clients to talk about their non-titled assets (for example, items other than real estate, deposit accounts, marketable securities or retirement accounts) and stories will likely start to flow. There will be memories of trips, items inherited from prior generations and, perhaps, personal collections that have particular meaning to the client. Experience shows that this kind of conversation is especially meaningful if it takes place in the family home with the client walking around and showing off his things. Following this conversation, advisors can coach clients that it will help their children and family harmony if they provide guidance and make decisions themselves as to who will inherit what when they’re gone. While negative examples aren’t attractive, a few stories about families torn apart by dividing up personal property may incite action.1
Also, advisors can provide a “reality check.” The large family house that costs $100,000 a year to maintain that the client is holding on to “for the family”? It’s not inappropriate for advisors to go through the logistics of this plan and recommend that the client ask his children whether any of them want the house and whether they can afford it. For example, back in the 1990s, a client was considering a qualified personal residence trust (QPRT) with the family’s beloved vacation home, “so that her children could continue the tradition of gathering there with their families when she was gone.” She was worrying about having to pay rent at the end of the QPRT term and, in discussing this with her children, learned that, in fact, they didn’t want the house at all. That was important to find out and was nearly missed in the planning with their mother.
As an aside, visiting clients in their homes also provides a good opportunity to review with clients their homeowner’s insurance, as well as flood insurance, as appropriate, and ensure a sufficient amount of umbrella liability coverage in line with their liquid assets.
Talking about mortality is never easy. However, one positive approach is to connect memories and experiences with family mementos, thereby initiating the conversation around storytelling. Again, the home visit can give rise to a meaningful conversation that leads to decisionmaking about non-titled assets. Observing a particular collection and engaging the client in a discussion about its origin, its importance to the client and its possible value will often suggest a planning opportunity. Glass sculpture in the vitrines in the living room (and family room and dining room, suggesting an extensive and valued collection), might indicate that the client has a passion for art glass, has spent a fair amount of money acquiring examples, will likely love to talk about his collection and, yes, will tell you that museums don’t want it, and he simply doesn’t know what will happen to it when he’s gone. He may say his plan is to let his children figure it out later. You happen to know that one of his children is recently divorced and contemplating moving home (not a good candidate), and the other has just purged his own home of things as a “less is more” follower. In short, a beloved collection can quickly become an albatross to heirs that’s best handled by the collector himself. The advisor’s role is to discover the issues, understand the values and the options and help coach the client/collector to consider alternatives for disposing of the assets to the best advantage of all involved. In this case, preparing the heirs with contacts and dealers may be the appropriate next step.
Another approach for family members that advisors can suggest is a “what if” conversation: “Mom, what if something were to happen to you? Are there particular things you have in mind for each of us?” This can open the door to a meaningful dialogue that will save heartache and strain when that parent is deceased.
Decide During Life
The decisions about who will get what can be made during life or at death. If made during life, then the decisions will certainly reflect the clients’ wishes. This again offers the opportunity for both storytelling, as well as confirming that the recipient wants the object and can take it (again, complicated by small urban apartments, the trend toward more frequent job changes and moves). The conversation doesn’t necessarily have to go into specific objects, but can be directional about how the client would like distribution to occur after his death. Scratch below the surface and most clients have a (general) vision of how they expect their heirs to divvy up their property (“I know my art books will go to my granddaughter,” without any idea of whether the granddaughter will have any interest or capacity to take them on). Further, parents may have ideas about the rivalries and behaviors of their children, even if they won’t confront them, and often admit to worrying about precisely the rancor the division will cause.
Another related situation occurs when a parent is incapacitated and a child or advisor is acting as trustee or pursuant to a durable power of attorney. What were the intents of the parent/principal with respect to his property? What needs to be sold, if anything, to raise funds for care? Consideration of how to advise in this example may be anticipated if advisors and/or family members are able to engage in dialogue with the parent/principal before incapacity occurs.
Dividing Up Assets
Methods for dividing up assets include:
1. Sale. If the parent has put together a collection, he’s most likely in the best position to know how to dispose of or sell it. He’ll know the dealers in that collectible, have stories about the collection, know its high points and may know potential buyers. One book collector was able to negotiate a sale/gift to a university library of her collection that would never have been possible by the family; this brought enormous joy and pride to the owner, provided liquidity during life and, possibly most importantly, saved the family from the burden of figuring out what to do with a relatively obscure collection after the death of the parent.
2. Letter of instruction. Identify in writing who’s to receive each item of non-titled property. A letter of instruction may not be legally binding, as a provision in a will would be, depending on the jurisdiction, but it can offer guidance to the heirs as to intent.2
3. Heirs to choose items. Some families place colored stickers on the underside of objects to identify who wants what … when the time comes.
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 what to do with the remaining contents. Frankly, one hopes that we’re not talking about an estate in which assets walked out on their own—you know, the darker wallpaper indicating a painting once hung there, the empty top drawer of the dining room sideboard that clearly once held flatware. 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 being divided up 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 what they each want. In the experience of most advisors and executors, there will be items everyone wants that aren’t divisible. The items may have monetary value or may be of sentimental value only; nevertheless, they will be deemed “priceless.” Each advisor has his own tried and true methods for resolving this conundrum:
• Heirs each make their own list of what they would like, and an objective outside party reconciles the list. Or, depending on relationships, the objective outside party may need to sponsor brokering, negotiations or bartering or, in one instance, threaten that everything will simply be sold if the family can’t agree.
• Draw straws to determine the order—the heirs each draw a straw of different lengths and the longest (or shortest) goes first (this has to be agreed on beforehand). Straws can be re-drawn at each round of selection.
• “Spin the bottle” (or vase) to determine who gets to choose an object, same as above.
• Using the straw method, once an order of selection has been fixed, then for each successive round, the second person begins round two, the third person begins round three, etc. until all the assets have been chosen. Example: 1234/2341/3412/4123/1234 and so forth.
• Family auction—using play money, family members engage in bidding for each object with the highest bidder winning that item. When real money is used, wealthier family members are favored, and this may be perceived to be an unfair advantage. This goal can also be accomplished with a silent auction.
• Trading after the auction—heirs can agree to trade or swap items they selected once the process has been completed, if all parties to the trade agree.
When family members are unable to agree, then assets will have to be sold, often not at a competitive price. The threat of this outcome may also be successful in spurring a family to resolve their conflicts.
The best outcome for all—heirs, clients and even advisors—is for the family to appreciate the family legacy, preserve the memories, successfully divide up the non-titled property and maintain their relationships for years to come. Advisors generally don’t train for this “soft” side of working with families, but it’s intrinsic to our role, and positive client experiences will enhance our practices.
1. For more information on this topic, see Julie Hall, The Boomer Burden: Dealing With Parents’ Lifetime Accumulation of Stuff (2008) and www.theestatelady.com; Charles W. Collier, Wealth in Families, 2nd Edition (2006); www.yellowpieplate.umn.edu and Who Gets Grandma’s Yellow Pie Plate? A Guide to Passing on Personal Possessions (1999), University of Minnesota; Bill Taylor, Who Gets My Personal Stuff? Transferring Personal Property; www.eDivyup.com and the HeirSplit app for iPhones.
2. See each states’ rules on incorporation by reference. The Uniform Probate Code Section 2-513 permits a dated writing signed by the testator describing the items and the devisees with reasonable certainty.