By Melissa Myers and Michael J. Tucker, October 2016 Web Exclusive.
Melissa Myers: Let’s talk about that thing that happens when our clients plan for who gets the stuff in their houses when they die.
Michael J. Tucker: Stuff is a technical term here: furnishings, artwork, jewelry and so forth.
Myers: Yes, we’re talking about household contents, or tangible personal property.
Tucker: Sometimes, knowingly or unknowingly, people set up a situation that makes the division of the stuff worse rather than better.
Myers: So how would you best make a plan for the household stuff, as opposed to the house itself, or the bank accounts, or the life insurance proceeds or other liquid assets?
Tucker: Well, if you live in the same household with a spouse or partner or adult child, then the easier part is to make sure that you leave the stuff to them, if that’s the intention.
Myers: Does that direction technically show up in a will or a trust … or on the back of a napkin?
Tucker: In Arizona, this direction properly appears in a will. In some states, such California, people with trusts are incentivized by local probate laws to transfer their household stuff, cars and so forth into their trust.
Myers: So, generally speaking, we don’t do that in Arizona?
Tucker: Right. There’s typically no reason to do that here.
Myers: Then how should people plan for what to do with the houseful of stuff if they live alone, or if they are the last to die?
Tucker: That’s the more interesting question. Then the task at hand is to clean out a houseful of stuff.
Myers: Anyone who has done that task knows that it is very time consuming.
Tucker: Experience suggests that the household stuff will probably have a fair market value that is close to zero.
Myers: Folks tend to think of the stuff as being worth what they paid for it.
Tucker: That’s my experience, too. As a practical matter, the retail price tags on the stuff in our houses are usually irrelevant at that point.
Myers: The stuff in our houses is typically worth less than the time and effort it takes to clear the stuff out of the house.
Tucker: We would prefer not to believe that, but in most cases it’s true.
Myers: So, what can we do during our lifetime to leave things easier for our loved ones when they have to clear out the house someday?
Tucker: I have a few ground rules or theories that can guide people in this matter. Let’s say you intend to divide your entire estate among a group of relatives, children, friends or charities.
Myers: They’ll have to outlive me first.
Tucker: That’s right. I would suggest that you choose one person to get that stuff.
Myers: Wait, what? What if I want an orderly division of all the stuff among a class of beneficiaries in equal shares?
Tucker: Then you’re setting up a potential family fight over the values of the stuff. That’s particularly unproductive if the fair market value of the stuff, objectively speaking, is next to nothing.
Myers: Which one of the beneficiaries should the stuff go to, then?
Tucker: One really handy approach is to write the will to give all that stuff to the person who is nominated as the executor.
Myers: Oh. Then that executor isn’t legally obligated to sell the stuff in the house for the highest prices.
Tucker: Right. They can light a bonfire if they want to, and the other parties in interest won’t have a legal right to complain about that.
Myers: So that’s how you avoid legal battles over valueless household contents.
Tucker: It helps.
Myers: What if folks want to make a bequest of valuable unique items to a museum?
Tucker: I’d suggest contacting the intended recipient (even if anonymously) to determine if the museum is able and willing to accept such a gift.
Myers: This inquiry goes beyond what we would want and moves into what the museum would accept.
Tucker: Maybe that will be the subject of another column.
Myers: We can all stand to take a closer look at what happens to our stuff, and with a few specifications we’ll be doing a big favor to those who outlive us.
Editor’s Note: This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Investors should consult a tax or legal professional regarding their individual situation. Neither Camelback nor Commonwealth offers tax or legal advice.