How Does Grandma Give Away Her Good China Away?

One of the big concerns posed by clients is how to distribute tangible personal property to various heirs. Tangible personal property are items like furniture, jewelry, books, china sets, pictures, paintings, family heirlooms and all the other knick-knacks your mother told you not to touch when you were 4 years old and visiting your grandmother's house. Many people usually have a good idea as to who should inherit a bank account, house or other major financial item but other smaller valued property can be a concern. Many clients are concerned with how to give away tangible personal property, particularly when the client is not sure who should get it at the time the will or trust is drafted or when they might change their mind.

First, you can list a piece of tangible personal property should go to a certain heir via your will. This is a form of specific bequest. For example, "I give my daughter, Jenny Smith my Wedgewood^TM china." The issue with giving specific property is when there is no Wedgewood^TM china to be given to Jenny Smith. For specific property, the general rule is that the property is adeemedⁱ, and the gift fails. The state assumes you either you sold, destroyed or gave away the gift to someone else and is not part of your probate estate.

You can also divide up your property more generally with each beneficiary getting a share of the tangible personal property in your estate. For example, "I give all my personal property to my children, divided equally." There are also problems with this form of bequest. Conflicts often occur when heirs covet the same item, say a painting or Mom's engagement ring. In fact, many probate disputes are over tangible property. It is up to the personal representative to figure out the most equitable way to solve the quarrel.

Another problem can arise if the tangible personal property is worthless but for one valuable item. The easiest solution is for the personal representative to sell the valuable item and split the proceeds among the heirs. Naturally, if the valuable item is a family heirloom selling it is not going to be an ideal solution. In those instances, some form of negotiation will need to take place among the heirs to determine a solution with the personal representative being the final decision maker on the overall plan.

There is another solution for determining the division of your tangible personal property and that is a personal property distribution letter. I typically draft wills with a personal property distribution clause in the will that allows the testator the opportunity to update specific bequests of tangible personal property to different heirs. For example, "I give my tangible personal property in accordance with any written instructions left by me."

With a personal property distribution letter clause in your will, you do not need to decide who is getting what property. Your will points to the letter that you can periodically update. You do not need to formally amend your will via a codicil. To amend the letter, just tear it up and write a new one. States differ on the degrees to which they will accept tangible personal property distribution clauses, but most states require that the tangible personal property letter is located with the will.

Ensuring that the right person gets the right property is always a concern, but, using a variety of distribution clauses, whether specific bequests or a distribution letter, you can more readily ensure your personal property goes to the right person.

Basics of Estate Planning: Joint Tenancy is Not a Good Estate Plan - Part III

This section is the third part of my three part series on joint tenancy and why it might not be the best option for estate planning purposes. You can read part 1 on rigidity of joint tenancy (here) and part 2 on tax issues (here). The last part will detail several secondary problems that may arise when you use joint tenancy with the right of survivorship to pass on assets to your children in the attempt to avoid probate.

The first major issue is that by adding your child onto the deed of your home, you potentially become liable to that child's creditors. If your child has financial problems or develops financial problem at any time after adding the child do the title, creditors can attack the child's ownership in the home to settle debts. The child's creditors would place a levy on the house to satisfy debt the child owes the creditor. The creditors would be able to reach that child's ownership interest in the home.If a levy is placed on the home by a creditor and the home is sold at auction, the debt will be paid off from the child's share of sale of the house. You get the rest - at best fifty percent of the sale price, if only one child is a joint owner of the house with one parent.

Hand-in-hand with financial problems is the possibility of the child declaring bankruptcy. If so, there is a chance you could lose your homeⁱⁱ. If your home has equity built up over a number of years of owning the home, a bankruptcy trustee can take steps to seize the house and sell it. If your home is sold, you and your child would receive the cash equivalent of the state exemptions, any mortgage(s) would be paid off, and the balance would be distributed out to your child's unsecured creditors on a pro rata basis. If there is any money left over at the point, it would be given to you.

If you transfer ownership of your home or bank accounts to a married child, there is the potential that the spouse will gain a marital interest in the property. If that child gets divorced, the divorcing spouse my require you to buy the divorcing spouse's interest in your home in order to maintain complete ownership of the home. Or, the divorcing spouse could force a sale of the home.

If you add your child to your deed, any type of accident that your child has could potentially result in you losing your home. For example, if your child is uninsured or under-insured and causes a car accident; the plaintiff will go after the most valuable asset to settle their grievance. If there is no insurance to satisfy the claim, your home could be sold.

Another issue with joint tenancy with respect to bank accounts is that joint account holders have equal access to the account. This means a child could withdraw money from your account at any time and without your permission. Most people will say that their child would never do this. But, desperate people take desperate measures. And, sadly this situation happens quite often.

Joint tenancy with the right of survivorship is a great tool in your arsenal of estate planning documents. But, relying on joint tenancy as the sole mechanism to pass on your estate to your child means there are issues and concerns of which you need to be aware.

Estate of the Month: A Beastie Boy Provides a "What'cha Want?" Guardianship Moment

Clients with children walking into my office to establish an estate plan are generally prompted by the desire to ensure their child's needs are taken care of if something happens to them. The client's main concern is who will be the guardian of their children. One of the big questions many clients confront is who to name as guardian of their children. The recent passing of Adam Yauch, a member of 80's rap group, the Beastie Boys, provides a great teaching point on selecting a guardian. More to the point, the Yauch demonstrates how to make naming a guardian much more convoluted.

Yauch died on May 4th after a long fight with throat cancer. He was a co-founding member of the rap group "the Beastie Boys." The group was on the leading edge of rap music with such songs as "Sabotage," "Intergalactic," "Paul Revere," "So What'cha Want," and many others songs that are now stored on my IPod^TM.

Yauch had a trust. This kept the terms of his estate private. But, a trust cannot accomplish all of a person's estate planning. A will still needs to be administered to name a guardian of a minor child. Many clients ask if they have a trust why they even need a will. Here is one big reason: the naming of a guardian for your child is something that can only be accomplished in a will. A will needs to be probated before the terms of the will can be administered. You can also appoint a guardian using a guardianship appointment document.

Most spouses name the other spouse as the guardian of their children in their will. However, it is naming the successor guardians, those people who would take over the care of the child if both parents passed away that can be an issue. Generally, it is preferred if parents appoint the same person guardian in their wills. From reading Yauch's will, it is clear that he and his wife could not agree on naming the same successor guardians in their wills.

Yauch's will stated that if he died in a year ending with an even number, ironically, say in 2012, his will appointed his parents, as the successor guardians. His wife's parents would be the successor guardians to his parents. But, if Yauch died in an odd-numbered year, say 2013, the successor guardians would be reversed. His wife's parents would step in as successor guardians, and Yauch's parents would serve as the backup to his wife's parents.

We will have to assume his wife's will has similar language. But, there is no guarantee. Also, except for some type of formal contract agreement between Yauch and his wife preventing Yaush's wife from amending her will, she wife can change her will at her discretion. She has the absolute right to change who would be successor guardians, including removing Yauch's parents. Further, his complicated guardian appointing scheme would only be effective if his wife predeceased him. Clearly, that did not happen.

Another issue with Yauch's will is basic logistics. Yauch was 47 when he passed away. More likely than not, his parents are in their 70's. It sounds good in theory to want the people that raised you to raise your children, but, does it make sense to have a 75 year old watching over a 14 year old - the current age of Yauch's child? Or, what, if your child is only 1 or 2 years old when you pass away? My mom always says she is wiped out after only a weekend just visiting, not caring, for my children. A good estate planning attorney will point out that problem.

Seeing the dilemma, many clients look to other relatives, starting with their own siblings - the child's aunts and uncles - as a potential guardians. This is especially true, if a client's siblings already have children of their own. The idea is that your children would be raised with their first cousins. Sometimes, in second marriage, where there are older step-siblings from a first marriage, the clients will name the older siblings as guardians for younger ones. Yauch and his wife likely did not have any of these options.

However, regardless of what you say in your will, the Court will want to weigh in on the matter. They will look at whoever is named guardian and determine if having that person serve as guardian is in the best interests of the child. Most times the Court will agree with the parents' designation. But, if not, the Court will appoint someone else. Further, if you have not appointed anyone guardian to your children, the Court will appoint someone based on the Court's best judgment. Here is a link to a short appointment of alternative guardian form.

Some clients know exactly who should be the guardian of their children, some clients have an vague idea, come clients have no clue. Or, in the case of Yauch and his wife, they disagreed. Regardless, naming a guardian will, at a minimum, ensure your wishes are considered.

ⁱAdeemed means to revoke in estate planning vocabulary.

ⁱⁱSome states provide homestead protection that could potentially keep your home out of bankruptcy and seizure but the exemptions and protections vary by state.