Clients like to say that they don’t have any personal effects of value. While they likely mean monetary value, they are overlooking the sentimental value these items may have. Fights over estates are not always about the dollars and cents. It is not uncommon to see fights among beneficiaries that start over a personal item that one beneficiary wanted, but another took. Or perhaps the executors disposed of these items before letting the beneficiaries know. Whatever the reason, personal effects can be a hot-button topic.
There are many considerations in handling your personal effects in your estate plan to ensure that there are no disagreements among the beneficiaries. Today, we are going to discuss some of these considerations.
Consider an Equalization Clause
An often overlooked consideration when dealing with your personal effects is how to treat all the beneficiaries equally. If one of your children has a very strong emotional attachment to a painting that was in their childhood bedroom, you may think it makes sense that this painting should go to that child. But what if that painting is worth a significant amount of money? The child receiving this painting would then be getting more from your estate than your other children.
Another common example is when jewelry is left to the daughters and granddaughters as they may have more use of or a stronger connection to these items. If the jewelry is the real deal, however, this could leave the other beneficiaries with far less.
An equalization clause could be included in your Will to address this. Your Will could provide that the painting can go to the child, or the jewelry can be distributed among the daughter and granddaughters, but that the estate trustees are to pay the other beneficiaries a cash legacy that is equal to the value of such a bequest.
Consider a Letter of Wishes or Memorandum
You may not want to include specific bequests to your beneficiaries. Today, you may be okay with your favourite cousin, Greg, getting your heirloom watch, but what if in a couple years Greg is no longer your favourite cousin? You would need to prepare an amendment to your Will (a “Codicil”) or update and re-sign your Will just to remove Greg’s bequest. This could become quite time-consuming and expensive each time you change your mind again about Greg’s gift.
Another reason you may not want to include a specific bequest is the risk that you may not have this item on your death. If you leave a specific item to a beneficiary, but during your lifetime you have already disposed of this item, then the beneficiary doesn’t get anything on your death. This could also create inequality among the beneficiaries.
A letter of wishes or memorandum that sets out how you would like your estate trustees to distribute your personal effects among your beneficiaries may be the preferred option. Rather than having to update your Will every time Greg gets under your skin, you can simply update the letter of wishes or memorandum. Although a letter of wishes doesn’t create a legal obligation on your estate trustees or family members to follow your wishes, it provides guidance to whom you would like to give your personal items to and may be morally binding.
Consider a Selection Process
Rather than gifting specific items to beneficiaries, you could direct that your personal effects are to be divided among all of your beneficiaries in a manner that they may agree on among themselves, or as the estate trustees may decide.
In some cases, though, you may already know that your beneficiaries will not come to any agreement on how to distribute the items, or you may have an extensive and valuable art or jewelry collection where extra care is needed in order to ensure a fair distribution.
In this case, consideration should be given to include a mechanism in your Will to distribute these articles. For example, your Will could provide that the beneficiaries draw lots to determine an order for each of the beneficiaries to select an item.
An option could be given to the beneficiaries to purchase items from your estate or receive the items as part of their share of the residue of your estate.
Or, rather than worrying about a selection process, you could always say that if there is a disagreement among the beneficiaries with how to distribute your personal effects, then no one gets anything, everything is to be sold and the proceeds are to fall into the residue of your estate.
Consider Inter Vivos Gifts
Sometimes, you just know that your beneficiaries are going to fight over your items. And sometimes, given the value of your items, you do not think it is worth the extra headaches for your estate trustees to have to deal with equalization of the items or organizing a selection process or auction for the beneficiaries.
In these cases, do not underestimate the very simple solution of gifting while you are alive! This way, no one could argue with who should be getting what.
These are just a few of the considerations for how to deal with personal effects in your estate plan. Even if they may not be your most valuable assets, they should not be forgotten as they can sometimes create the most problems for your estate trustees and loved ones.
— Stephanie Battista