Estate Planning Fundamentals: How to Plan for Tangible Personal Property

Over your lifetime, you likely have gathered things that are important to you —tangible items —that you may hope your loved ones will cherish once you are gone. Unfortunately, items like these often are the greatest source of conflict after the original owner’s death. To help you try to avoid or at least minimize conflict, here are important considerations for you today:

1. Have a clear plan

Letting your loved ones know your wishes for your tangible personal property —during your life and at your death —may help prevent some disagreement among them. Consider the following questions when working with your estate planning attorney:

• Do you have a list of the personal property you own?
• Do you have certain items that you want specific individuals to receive?
• If some items should be divided as the beneficiaries agree, how should a conflict be resolved?
• What should happen to the property if a particular beneficiary is not living or is a minor at the time of the transfer?
• Who should pay for appraisals, taxes, transport, insurance and other expenses related to the transfer of the property?
• Do you have any unique assets, such as firearms, wine collections or reproductive property, that create special issues?

2. Create a personal property memorandum

One option for communicating your wishes for your tangible personal property may be a memorandum separate from your will that lists certain items of tangible personal property and the intended recipients. This is often a way to make sure your beneficiaries know exactly what your intentions are. If using such a memorandum, consider the following

• Many states allow residents to prepare a personal property memorandum that is legally binding, while other states provide that the memorandum is merely guidance to the executor and family.
• A memorandum can be more convenient than putting specific bequests in your will because you can typically change the memorandum without observing the formalities of a will.
• If you use a memorandum, it is important to consult with your attorney to ensure it is consistent with applicable state law.
• Your memorandum should also be as specific as possible to avoid any questions or disagreements later.

3. Remember all family members

Blended families may bring additional considerations for how you plan for your tangible personal property. While many people think the simplest approach is to leave all tangible personal property to their partner for distribution consistent with their intentions, that does not always work out as intended for a variety of reasons. For example:

• Your partner may not have the capacity to carry out your intentions.
• Your partner may have (or may later develop) intentions contrary to yours.
• Your partner may pass away soon after you without having the opportunity to carry out your intentions.

Instead of relying on your partner, you can prepare legally binding instructions in your will or in a personal property memorandum (as described above) as to which personal items should be given to your family members at your death.

4. Consider charitable beneficiaries

In addition to individual recipients, you can also specify one or more charities to receive certain items of your tangible personal property. Designating a charitable recipient can be desirable under many circumstances, including the following:

• To fulfill philanthropic goals
• To avoid favoring one individual over another
• To avoid disagreements over a particular item
• To dispose of an unwanted item
• To obtain a tax deduction

5. Timing of the transfer

While many think of giving away their tangible personal property at death, it may also be beneficial to transfer certain items of personal property during life. Below we compare making a gift of tangible personal property during your lifetime and at your death.

Gifting during life

• A lifetime gift may use the annual exclusion or lifetime gift tax exemption. If those do not apply, gift tax may be owed.
• In general, the recipient takes over the donor’s cost basis.
• A major advantage is that the donor can experience the joy of making the gift and seeing the recipient enjoy it.

Transferring at death

• Property transferred at death may use the estate tax exemption. If the exemption does not apply, estate tax may be owed.
• In general, the property receives a stepped-up basis to fair market value as of the date of death.
• A key advantage is that the owner retains the use and enjoyment of the property during life.

Final Thoughts

Developing and documenting a clear plan regarding your tangible personal property helps to ensure that your wishes will be fulfilled. For more information, visit our Estate planning fundamentals page.