Speaker 1:
Hello, and welcome to another episode of Wealth Planning Illuminated. I’m your host, Theresa Marx, a senior wealth strategist at CIBC Private Wealth in the US. I am joined today by my colleague Keri Pankow, also a senior wealth strategist at CIBC Private Wealth. In today’s episode, Keri and I will discuss planning for personal property, which includes items such as jewelry, household items, artwork, and the like. While these items might not have the most fair market value in an estate, they do often carry a lot of sentimental value and therefore can often be a cause of conflict for the beneficiaries. So today we’ll focus on action items that you can take in order to help avoid or at least minimize conflict when it comes to these types of items. Alright, let’s get started.
I think a lot of times when people think about estate planning, they think about the big stuff, their financial accounts, their real estate, maybe even their expensive artwork that they’ve collected, but often people seem to forget about their personal property or what I very elegantly like to call people’s stuff, the household furniture, the china, the jewelry, the things that people really accumulate over time, but then sometimes forget about when they’re actually doing their planning. But at the same time, I’ve also often found that that’s often where a lot of conflict can arise because that’s where the sentimental value is. That’s where the things that you can’t just easily divide fifty fifty between two kids. And so let’s talk about what are some ways we can plan for personal property, not only so it gets to where the person wants it to go, but also to really avoid conflict among beneficiaries. So what are some things or considerations people can do now to plan for the personal property going forward?
Speaker 2:
I think a lot of times what people can start by doing is just making a list of the tangible personal property that they have. What are the items that are important to them or possibly their beneficiaries? Can they list them out? Can they think through who might want to receive certain things or how do they want to go about it? Sometimes there’s an item both children will like and it might be easier to resolve that currently or talk about what one will get or what the other one will get so they’re prepared when the time comes to receive that tangible personal property. And another thing that I find is really helpful is not just who will receive it, but how will you go about it? What if you need to ship it to the beneficiary? What if you need to ensure it or appraise it? What steps do you want to take there? How do you want to make sure those things play out for each beneficiary? So it’s important to kind of think through what you have, who you want to receive it, and how that might work out. And oftentimes it is well received by the beneficiary if they know the plan going forward too. So maybe they’re not surprised on your passing that they didn’t receive this special picture or vase or thing that they had in their mind. And it’s been discussed already when you’re creating your estate plan.
Speaker 1:
I think that’s a really good point. I think not only is it important to have a plan or create that clear plan, but talking about it can also be really helpful or I think as you were saying, asking the beneficiaries what are they hoping they receive? I once had a client who left behind a butter dish that she didn’t even think about the butter dish, but her kids thought about it because it was on every Thanksgiving dinner table. And so it was important to all of them. And the last thing you would think there would be conflict about was the butter dish. But I think sometimes talking about it, you understand where that sentimental value is that people have that you might not even know about.
Speaker 2:
Yeah, that’s exactly right. And I think it makes it really helpful too when going through that process. To your point, there are items that may be more meaningful to your children beneficiaries, whomever, that you wouldn’t have even given thought. You might not have even carved out in your estate plan. So it is great to have those conversations.
Speaker 1:
So once you have those conversations and you decide the individual decides how they want that personal property be distributed, how do we memorialize that? What are some options there?
Speaker 2:
So a very common way to handle this is to put it in a tangible personal property memorandum. This is usually drafted outside of your will or your trust. And the rules around it vary from state to state. Some states make this document legally enforceable. Other states will use it as guidance, but it’s a great way to specify these certain items of tangible personal property and who you want them to be given to. So one thing that’s worth noting is that it’s also important to be specific on these documents because instead of just saying the picture over the couch when you might have more than one, you can specify this particular artist or the one with the trees, and then it can go to my daughter, my son, my spouse, whomever, and it can be very clear. And so there’s no conflict when the time comes to allocate the property, no confusion.
Additionally, the great thing about the memorandum is that oftentimes it can be updated more easily than a trust or a will. It doesn’t often have the legal formalities that other estate planning documents might have. So if you change your mind or you want to add to it, it’s a great option. And I should note that it’s worth talking to your attorney about it prior to doing that just to make sure that any legal requirements are incorporated into that document and that if, for example, let’s say the last in time document will control that everything is updated appropriately, things like that, just to make sure it’s carrying out your wishes and that you’ve included everything that you want to be included in the memorandum.
Speaker 1:
So it can be a less formal document, but it’s still really important to make sure that you’re complying with whatever the document says or whatever state law might say to make sure that it actually is effective so that upon your death, there’s no question or concern there.
Speaker 2:
Yeah, exactly.
Speaker 1:
So a lot of times if somebody doesn’t have a personal property memo, maybe it just says something in their will as to where it should go. A lot of times we see all my personal property to my spouse or to my partner, and then if they don’t survive, that person doesn’t survive, then it would all go to kids or nieces and nephews or to whomever. But I think a lot of times that works great in some situations, but in a blended family situation, for example, maybe the spouse or the partner isn’t the parent of the children. What are some considerations there? What should we be aware of, again, as we’re trying to avoid some conflict and make sure wishes are carried out?
Speaker 2:
Yeah, absolutely. That’s a great question too because I think oftentimes you’re inclined to say, oh, my spouse or my partner knows what I want to have happen, and maybe those wishes haven’t been communicated, or maybe it’s not clear that certain children want certain items. And so instead of guessing or leaving it up to them, it might be clearer to specify during your lifetime because if your partner doesn’t know your wishes, maybe they can’t move forward with your wishes, or perhaps your partner doesn’t have capacity when it comes time to distribute the tangible personal property so they’re not able to express what your intentions were. And also sometimes there’s a risk that maybe your partner is not clear on your intentions and distributes assets contrary to what your intentions were. So things like that, just being clear during your lifetime can help avoid some of those issues.
Speaker 1:
So I think really all three of the things we’ve just talked about, making the plan, creating the personal property memo, really if there’s a partner spouse, making sure they understand or having a legally enforceable document that creates that. It sounds like it’s really all about making your intentions clear and really making sure that everybody knows what you want and then making sure your documents carry that out.
Speaker 2:
Yes, that’s exactly right. I think clarity and confirming the documents are conforming with all of those things is very important.
Speaker 1:
So another question I sometimes get is, what about charity, right? Maybe it’s for the property that maybe children don’t want or doesn’t have a market value. What are some considerations when somebody’s charitably inclined and may want to give some or all of their personal property to a charitable beneficiary?
Speaker 2:
Yeah, giving assets to a charitable beneficiary is a great way to achieve your philanthropic goals. If you do want to give to charity, this is one great mechanism for doing that. Another thing along the same approach is to your point, if any beneficiary does not want to receive a certain item, it might be a great opportunity to make a charitable gift. If you’re afraid that certain beneficiaries might disagree and they can never come to a resolution as to who should receive that particular item, maybe that’s a great option to give to charity so that way your beneficiaries don’t have to argue down the road and just worth noting when you do make these charitable gifts, it’s also, it could be eligible for a tax deduction. So that’s another benefit if you do want to give certain items of tangible personal property to charity.
Speaker 1:
I think I see this most often with something like artwork, for example, where somebody’s maybe donating it to a museum or they don’t want to choose one child over the other to receive the important painting, for example, they might give it to charity in that situation.
Speaker 2:
Yeah, that’s a great example of utilizing that.
Speaker 1:
So another question I think that often comes up is when to give, right? Do I give my ring to my daughter while I’m alive or do I wait until I’m gone? Thoughts on that is kind of what should people be thinking about in terms of timing of when to give away their personal property?
Speaker 2:
So there are a lot of considerations around this. Some are personal, some have tax implications. And so for example, if you want to give an item during your life, to your point, you want to give your daughter or your ring and you want to see how happy that makes her, something that’s a benefit that you’ll get during your lifetime. You’ll get to watch her appreciate the gift, things like that. But from the tax perspective, it’s important to know that your daughter will receive what’s called a carryover basis for that particular item. And so that’s just a consideration when you want to make a lifetime gift, things like that. Another thing with making a lifetime gift is that you can utilize other sorts of exemption, your annual exclusion exemption or your lifetime gift exemption or a state tax exemption to make those lifetime gifts of those certain properties.
Speaker 1:
So in terms of the tax considerations, it sounds like, so if I give my ring to my daughter, if it’s maybe under the annual exclusion amount, I don’t have to worry about the gift tax consequences, but if she sells that ring, she has to think about what I paid for in order to think about if she’s going to realize any sort of income tax benefit, which hopefully if I’m giving her my ring, she’s not going to sell it, but she might someday.
Speaker 2:
Exactly, yes. No, that’s a good point.
Speaker 1:
And so there’s both a gift tax consequence and an income tax piece of the puzzle.
Speaker 2:
Yes, yes. Okay.
Speaker 1:
Okay. So then what about if somebody receives property at death
Speaker 2:
And there’s similar considerations to make a death, so upon your death, the asset will get a step up in basis. So the income tax considerations might not be as significant if, let’s say the beneficiary does decide to turn around and sell the item immediately. Similarly, it can be applied to your estate tax exemption that’s in place upon your death, if any is remaining. And then this also gives the donor the opportunity to enjoy that tangible personal property throughout the course of their lifetime before giving it over to the beneficiary and then on their debt, the beneficiary can then enjoy it.
Speaker 1:
I do think that that last piece is such an important one. I think a lot of times, and I will often say to people asking this question about when do I give it, it’s really like, what are you trying to achieve in a way? Do you want to continue to wear that ring to continue my example? Or do you want to see your daughter wear it? What’s important for that particular item? And it might be a different answer depending on the item. Maybe I want to give that butter dish away, but keep the ring or vice versa. So I do think that’s one of the most important considerations just from a, this is personal property, and again, kind of going to that sentiment and that idea that this is stuff that you use. And so really thinking on that kind of personal side I think is really important.
Speaker 2:
Yeah, I completely agree. I think having the flexibility and understanding what you want, what your considerations are with other people are all important aspects of timing, of gift giving.
Speaker 1:
Think in a way, as we talk about personal property, I think what has gone through this conversation is really that personal side of it, right? It’s that making sure people you understand how it’s going to make people feel or what are people’s feelings towards each item, and making sure you have that plan, that you express that plan, and if charities an option for you or consideration for you, thinking about what makes the most sense there. And then ultimately on the personal side, as well as the tax side, thinking about during life and at death, ultimately, what makes the most sense for the person currently owning it and the person that might receive it. Thank you for joining us for this episode of Wealth Planning Illuminated. We hope you found this topic interesting and that you will continue to explore the variety of wealth planning topics available to you on this channel. Thank you and have a great day.
Speaker 3:
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