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Tuesday, April 29, 2014

Using Trusts in Estate Planning for the Second Marriage

The recent news reports about Oleg Cassini’s estate got us thinking about estate planning for second marriages, particularly a second marriage where the spouse is the same age (or in some cases even younger) than the children from a prior marriage.

One possibility when there are children from a prior marriage is to use a trust for the second spouse for life, with remainder to the children. The goal is to provide for the support of the spouse during his or her lifetime, but ensure that the children will receive their inheritance after his or her death. By using a trust, the spouse cannot control what happens to the property and divert it away from the children (for example, to a subsequent spouse and/or children). An impartial trustee can ensure that the trust is well managed and any distributions comport with the trust terms. That may be a workable strategy when the children are adults who don’t need immediate access to the wealth after the death of their parent, and the spouse is close in age to the deceased parent. But what if that is not the case? What if the decedent does have minor children from a prior marriage or relationship, so that the decedent will need to meet the support needs of both the children and the surviving spouse? Or what if, as in the Cassini case, or even TV’s “Modern Family”, the surviving spouse is around the same age as the adult children, so that waiting to inherit until after the death of the surviving spouse is not a viable option?

The best approach in such a case may be for the decedent to create two separate pools of wealth, one for the children and one for the surviving spouse. This can be accomplished by simply dividing the estate under the Will into a share for the spouse and a share for the children. The spouse’s share can still be in trust, with the remainder after death going on to the decedent’s issue, so that the wealth stays in the family. The main problem with this approach is that if more than the $5,340,000 exemption is left to the children, the estate will be subject to federal estate tax, which is not at all desirable. In such a case the pool of wealth for the children will likely have to be created either by well-structured lifetime transfers and/or by life insurance held in an irrevocable life insurance trust (ILIT) for the benefit of the children.

Another option would be a shared discretionary trust with both the spouse and the children as beneficiaries. The advantage of this approach is flexibility in that the property can be made available to the entire family with distributions made to those who most need it from time to time. The disadvantage is that unless family relationships are excellent, a shared trust is highly likely to become a bone of contention and cause conflict within the family – again, not at all a desirable result. Also, such a discretionary trust could only be used in any case up to the remaining exemption amount before federal estate tax would be imposed.

The emotional factors at play in a second marriage situation can make estate planning challenging. Ideally such planning will reduce the risk of dispute between spouse and children by providing appropriate wealth and financial security for all parties.

Disclaimer – Postings Not Legal Advice

This blog is not legal advice and no attorney-client relationship is formed. The information and materials on this blog are provided for general informational purposes only and are not intended to be legal advice. The law changes frequently and varies from jurisdiction to jurisdiction. Being general in nature the information and materials provided may not apply to any specific circumstances. Nothing on this blog is intended to substitute for the advice of an attorney. If you require legal advice, please consult with an attorney licensed to practice in your jurisdiction.

Monday, April 21, 2014

Estate Planning With Basis in Mind

Income tax aspects are an important part of estate planning. One of the most crucial of those aspects is the distinction between the “carryover basis” rule for gifts and the co-called “step up” in basis rule for inherited property.

Under the carryover basis rule for gifts, the donee usually takes over the donor’s basis. So for example, let’s say father Frank buys stock for $1,000. Frank is a savvy investor, and a few years later the stock is worth $10,000. Frank then gives the stock to daughter Diane. Diane’s basis in the stock is $1,000, “carrying over” Franks basis. Consequently, if Diane sells the stock for $10,000 she will have taxable gain of $9,000 (the difference between the $1,000 basis and the $10,000 sales price).

By contrast, inherited property gets a new basis equal to its value on the date of death. This is called the “step up” in basis – although of course it could be a step down in basis in some cases, depending on the value of the property at death! The step up applies even if no estate tax is due at death. All that is necessary is that the inherited property be included in the federal gross estate. So going back to our example, let’s say instead of making a gift when the stock was worth $10,000, father Frank died and Diane inherited the stock from him at that time. In that case, Diane’s basis in the stock is $10,000, equal to its value at the date of Frank’s death. Consequently, if Diane were to sell the stock for $10,000, she would not have any taxable gain.

Traditionally, people were usually more concerned about estate tax than income tax consequences. In the first place, estate tax rates were much higher than long term capital gains tax rates. In addition, estate tax was imposed at a much lower level of wealth —for example, in 2004 there was only a $1.5 million federal estate tax exemption. By contrast, the federal estate tax exemption is now $5,340,000 (and is scheduled to be increased for inflation in future years). Meanwhile, the top federal estate tax rate is now lower at 40%, while the top long-term capital gains tax rate is now 23.8% (including the ACA surtax), and 28.7% on average if state capital gains taxes are also taken into consideration. As a result, fewer people are paying estate tax and planning to avoid capital gains tax has greater significance.

Interestingly, if assets have gone down in value from the date of purchase, the gift basis for gain could actually be higher than the inherited basis. Even if the fair market value is lower than basis at the time of gift, if the property is later sold at a gain the donee can still use the donor’s carryover basis. For example, let’s say mother Meg buys stock for $1,000 and it goes down in value to $800. If Meg then gives the stock to son Sam, Sam’s basis for gain is still $1,000, the “carryover” of Meg’s basis. On the other hand, if Meg dies and Sam inherits the stock, Sam’s basis is only $800, the value of the stock at the time of Meg’s death.

In such a situation a prospective donor like Meg might choose to sell the property and take the loss assuming he or she can use it. However, some property is not easy to sell, and/or the donor may wish to pass certain property on to family members regardless of its current value. In that case, it may be better to gift the property to take advantage of the higher carryover basis. To preserve the opportunity to make such a gift it may be important to have a durable power of attorney in place that grants broad gifting authority, as the donor may lack capacity to make gifts in the period before death.

In the case of assets that have increased in value from the date of purchase, if the estate will not be subject to estate tax it is likely better from an income tax standpoint for the recipient to inherit the property and get the step up than to receive it by gift – recognizing that there is no absolute certainty that the estate will remain low enough to be non-taxable (and that the tax law could also change again). In this stratum of wealth the desire to actually include assets in the estate has led, for example, to renewed interest in retained life estates, by which property can be technically given away during life but yet included in the estate at death to get the step up in basis.

If the estate is of a size that estate tax is likely to be a concern then many factors -- including the overall size of the estate, post gift appreciation, future exemptions and rates of tax and the basis of the property -- will be relevant in evaluating whether a lifetime gift is likely to be more beneficial than holding the asset until death. In general, this is a complex analysis but may at a minimum argue in favor of making any gifts in trust to maintain some flexibility in tax planning.

Disclaimer – Postings Not Legal Advice

Tuesday, April 15, 2014

What is a Pet Trust?

In the 1970 Disney movie “The Aristocats” a wealthy woman leaves her entire estate to her four cats for their lives, and then to her butler, Edgar. Edgar secretly hates the cats and tries to kill them so he can inherit the property right away. Apart from the attempted murder of course, what was a whimsical movie plot almost 45 years ago is now common as the majority of states authorize trusts to take care of pets after their owner dies. Specifically, according to the ASPCA website, only four states --Kentucky, Louisiana, Minnesota and Mississippi – do not recognize pet trusts. And even in those states a pet owner can take steps to provide for a pet using a “common law” trust.

Trusts for pets are usually created by pet owners who do not have a close family member to care for the pet. In order to create a pet trust the pet owner leaves money to a trust for the benefit of the pet, and appoints a trustee to manage the money and make sure it is used as intended. The pet can also be left to the trustee under the pet owner’s Will so that the trustee is the pet’s legal owner. The trustee does not have to be the person taking day to day care of the pet. It may even be good to have those be two different people so that there is some oversight. The pet trust should designate a back- up trustee and a back-up caretaker in case the named people die or become unable to take care of the pet. The trust can of course detail the pet’s routine, preferences, needs, etc., to give complete guidance to the caretaker and trustee. After the pet trust ends any money left over will go people and/or charities designated by the pet owner.

One downside is that a court can reduce the size of the pet trust if the court finds it is excessive for the purpose. For example, under New York Estates Powers and Trusts Law 7-8.1(d): “A court may reduce the amount of the property transferred if it determines that amount substantially exceeds the amount required for the intended use. “ Such was the case with Leona Helmsley’s dog Trouble, who saw his $12 million trust reduced to $2 million. However, by all accounts Trouble lived a life of luxury until his death in 2011, as reported in Trouble’s obituary from the NY Times: http://www.nytimes.com/2011/06/10/nyregion/leona-helmsleys-millionaire-dog-trouble-is-dead.html?_r=0

Pet trusts usually last for the life of the pet. A pet trust can also cover more than one pet, and in that case will usually last until the death of the last pet to die. However, some states limit the term of a pet trust. Four states – Alaska, Michigan, Montana and New Jersey – limit pet trusts to a maximum length of 21 years. Tennessee has a maximum limit of 90 years, and Washington State has a maximum of 150 years. Colorado and South Carolina specifically provide that offspring in gestation are covered by pet trusts. However, even in states that do not address this issue, the term “living” has usually been understood under trust law to apply to those in gestation, so the result should likely be the same.

Instead of a formal pet trust (or where a pet trust is not a legal option) a pet owner may use a “common law trust” to provide for a pet after death. In that case the pet owner would leave the pet to a trusted individual, and would also create a separate trust for that individual with directions that it be used for the care of the pet. That means the caretaker is the beneficiary of the trust, and the caretaker is also the pet’s legal owner. The trust could, however, still have a separate trustee.

Because pet trusts (whether formal or informal) are often created by those who do not have close family members, it may be wise to anticipate that more distant family members who otherwise stand to inherit may object to a large gift to a pet. In a 2012 New York case an elderly woman named Charlotte Stafford disinherited her nephews (who were her closest relatives) and left $100,000 in trust for her cat “Kissie Meow,” together with a direction that Kissie and her designated caretaker should occupy Charlotte’s house rent free until Kissie’s death. The Will withstood a challenge by the nephews based in part on the testimony of the lawyer and paralegal who assisted with the preparation and signing of the Will that Ms. Stafford was clear as to her wishes. Thus, solid documentation of the pet owner’s wishes and careful execution of documents may be particularly important when dealing with pet trusts.

For more information about pet trusts in general, see the ASPCA website: http://www.aspca.org/pet-care/planning-for-your-pets-future/pet-trust-laws

Disclaimer – Postings Not Legal Advice

Monday, April 7, 2014

Estate Planning for Digital Assets – the Good, the Bad and the Unknown

Introduction. Because we engage in so many activities on line, estate planning for “digital assets” is increasingly important. The phrase “digital assets” can encompass many things, including contents of an iTunes account, ebooks on a Kindle, postings on social media accounts, such as Facebook, Twitter, or Youtube, and email accounts, among others. Some of these items have monetary value, and some have mainly sentimental value. So what happens to these digital assets after death?

Law is still developing. In fact, there is no clear answer because the law in this area is still developing. Some assets are not transferable legally, but may be available to family members as a practical matter. Another legal issue is that various federal laws prohibit anyone other than the account holder from having access to email and similar on line accounts. So for now it’s a piecemeal answer that depends in part on the user or terms of service agreements for the various assets. However, there are some steps you can take to plan for digital assets.

Identify assets. The first step is to identify the assets. For example, perhaps you have two email accounts, an iTunes account, a Twitter feed and a Facebook account. It is also important for this purpose to include accounts that are not in themselves digital assets but that provide access to assets through on line portals – for example, bank accounts, brokerage accounts, credit card accounts, etc. It will be quite difficult to handle your financial matters in the event of incapacity or death without that information.

Maintain accessible but secure list of user names and passwords. Write down all user names and passwords for each asset and/or account and keep the list in a safe but accessible location known to loved ones and/or your legal representative. There are also online secure user name/password storage systems – but in that case be sure the password to gain entry to the system is in a safe but accessible location known to loved ones. Also be sure loved ones know the passwords of your actual computers and electronic devices. In one reported instance a woman left her iPad to her family but they could not access it because they did not have the necessary user name and password – the family described the iPad as a “shiny placemat” while they tried to get Apple to release the information.

Decide what should happen to the assets. The next question is – what should happen to the assets? Assets with sentimental value, such as email or a Facebook account, are often the most important to loved ones, substituting for the cherished home movies, box of photos or packet of letters of an earlier time. On the other hand, perhaps you do not wish to grant access to all or some accounts. Some social media and other digital platforms have adopted policies about what happens to accounts at death – in other cases the situation is less clear.

Facebook has a policy allowing loved ones to maintain a Facebook account after death as a memorial. Facebook also recently announced that it would permit memorial accounts to be more public based on privacy choices made during life, and that it would create “look back” videos upon request. However, apparently some relatives have felt the memorial page is too restrictive and have maintained the Facebook account in active mode; regardless of the legalities, they were able to do this as a practical matter because they had the user name and password.

Google has a service called “inactive account manager” that permits you to name a person to receive the contents of all google accounts (gmail, YouTube, google+, etc.) if your account becomes inactive, including by reason of death (or, presumably, prolonged incapacity). On the other hand, Yahoo has a policy denying access to email accounts. In fact, in what is probably the most notable digital asset case to date, Yahoo required a court order to give the family of a deceased marine named Justin Ellsworth copies of his emails.

The status of music and other content downloaded from iTunes is actually rather murky. Given the significant dollar value of iTunes and other digital content, as well as the personal nature of these items, there really should be a mechanism for giving or bequeathing them at death to loved ones, in the same way one could, for example, transfer a collection of CDs or vinyl records. Unfortunately, that is not the case. The iTunes user agreement says downloaded content is held on a personal license, which probably means it can’t be transferred to others and expires at death. However, it is not clear what that means as a practical matter, especially given that often family members share a single iTunes account across multiple devices.

Include language in planning documents to help an Executor, Trustee or other personal representative gain access. Ideally an Executor or personal representative should be able to deal with your digital assets, both in terms of accessing them and then transferring them to loved ones, the same way they can for any other personal asset, like a car, jewelry or work of art, but the law is not yet at that point. Legal access to the accounts holding the assets is a tricky question, and depends on state law, federal law and the user agreements. At the moment the best advice is to include a detailed provision in your estate planning documents (Will, revocable trust and/or power of attorney, as the case may be) authorizing your executor, trustee, or other legal representative to access your accounts and handle your digital assets.

Disclaimer – Postings Not Legal Advice

Saturday, March 22, 2014

Talking About Life Insurance Trusts

Introduction. People are often surprised to find out that their life insurance proceeds will be part of their taxable estate at death -- even if the proceeds are payable to others, such as a spouse, children or other loved ones.

What about the Estate Tax Exemption? Every person has an exemption from Federal estate tax, so it’s only if the total estate (including the life insurance proceeds) exceeds the exemption that Federal estate tax is a concern. Currently that exemption is the largest it has ever been, at $5,340,000 (or over $10 million for a married couple combined). But that doesn’t necessarily solve all tax problems. First of all, there is a risk that Congress will shrink the exemption in the future (it was $1 million only a few years ago). Second, affluent professionals with young families may carry large amounts of insurance – and the insurance together with their other assets may put them over the taxable threshold. In addition, there are cases where substantial insurance is purchased either to provide directly for children or other relatives at death or for other reasons (for example, to furnish liquidity to pay estate tax at death), and the estate planning benefit depends on the insurance not being part of the taxable estate. Finally, some states (including NY) still impose an estate tax at $1 million, which must be addressed in the planning process as well.

What about the Marital Deduction? A person can leave property to his or her spouse free of estate tax under the so-called “marital deduction” (subject to special rules if the spouse is not a U.S. citizen). However, the marital deduction merely postpones the estate tax until the death of the surviving spouse, it does not eliminate the tax. Moreover, obviously, not all persons who purchase life insurance are married.

Is there a way to get life insurance proceeds out of the taxable estate? Yes, the solution is to transfer the insurance policy during lifetime (and at least 3 years prior to death) to an irrevocable life insurance trust, also known as an “ILIT.”

What is an ILIT? As the name implies an ILIT is an irrevocable trust designed to hold a life insurance policy. The person who creates the trust is called the “grantor,” there is a trustee who is in charge of managing the trust property, and the trust is for the benefit of family members (spouse, children, etc.) and/or other loved ones, who are called the beneficiaries. Irrevocable means the grantor cannot change the trust after it is created –this is necessary to keep the insurance proceeds out of the taxable estate.

Who can be the Trustee of an ILIT? Generally, anyone other than the grantor can be the trustee of the ILIT. For example, if the ILIT holds an insurance policy on the life of a husband, generally his wife can be the Trustee. It is usually good to also have an independent trustee (who could be close friend or even a family member, such as a parent, who is not a beneficiary of the trust) or at least a mechanism to appoint one. The trustee should agree not to receive any compensation for acing as trustee of the ILIT, at least during the grantor’s lifetime, because the ILIT will probably not be worth much until after the grantor dies when the insurance proceeds are received.

What happens to the property in the ILIT? Usually the ILIT says that as long as the grantor is alive, the trust property will be held in a trust for all of the beneficiaries. For example, a typical ILIT for a married person might say that during the grantor’s lifetime, the trust is for the grantor’s spouse and all descendants of the grantor. After the grantor dies, many different things could happen to the property – it could continue to be held in trust for all the beneficiaries, it could be divided into separate trusts for different beneficiaries, or it could be paid out to the beneficiaries. That is something the grantor would decide in consultation with his or her estate planning attorney at the time the ILIT is created. Remember that the ILIT usually will not be worth much until the insurance proceeds are received after the grantor’s death.

How does the grantor transfer the insurance to the ILIT? The grantor transfers the insurance to the ILIT by filling out a change of ownership form and delivering it to the insurance company. As the new owner the trustee of the ILIT must then fill out the appropriate insurance company form naming the ILIT as the beneficiary of the life insurance. Sometimes both those steps can be taken on a single form.

What if you are thinking about getting insurance but haven’t yet applied? In that case it’s better to set up the ILIT first, and then let the ILIT apply for, purchase and own the insurance from the start. That way, you are not subject to the 3 year waiting period.

Who pays the premiums on the insurance after the insurance is transferred to the ILIT? Usually the grantor continues to pay the premiums after the transfer to the ILIT. Those payments are considered gifts to the ILIT, but they can be set up to fall under the $14,000 annual exclusion in most cases. There are some special provisions (called “crummy withdrawal powers”) that have to be in the ILIT, and there is some minor annual paperwork that is required in order to qualify for the annual exclusion. This is the most common plan for premium payments and works well in most cases. If it is not suitable, an estate planning attorney can recommend an alternative structure.

Disclaimer – Postings Not Legal Advice

Sunday, March 9, 2014

Top 5 Tips for Effective Trust Drafting

Top 5 Tips for Effective Trust Drafting www.zeekbeek.com

1. Flexibility. The first rule of real estate? Location, location, location. The first rule of trust drafting? Flexibility, flexibility, flexibility. Of course you can't always afford the perfect house in the perfect location, but you make the best choice you can under the circumstances - and it's the same with trust drafting. Unfettered discretion can put a lot of pressure on the trustee (and on the trustee succession provisions), and sometimes it's just not warranted or even appropriate. But one should strive to make every trust as flexible as possible consistent with the settlor's wishes and the practical realities of budget and family situation. Creditor protection, tax planning, and positioning for unanticipated family circumstances are all enhanced by flexibility. Just as an example, we have encountered a marital trust that permitted principal distributions only for a standard of support and health, which prevented a complete invasion and termination of the trust, even though that was desired by the family and would have facilitated overall estate planning.

2. Trustees. A trust is only as good as the trustees. Does this mean the trustee must be as good of an investor as Warren Buffet? No. But if the trustee is not a savvy investor, the trustee has to be prudent enough to follow good investment advice -- for example, Warren Buffet's own advice to the trustees for his wife, to invest in an index fund! Beneficiaries who are adult and reasonable can be co-trustees and participate in investment decisions as well. This can help them learn about money management.

It's usually a good idea to have at least one non-beneficiary trustee (or a mechanism to appoint one) as it may be important for such a trustee to exercise certain powers, for example, to fully invade and terminate the trust. Keep in mind that a trust can also be drafted so that different trustees are responsible for different functions (e.g., there can be a trustee responsible for making investments, and a trustee responsible for deciding about distributions).

Trustee compensation should be specified, keeping in mind that family members are often wiling to act as trustee without compensation. Authority to resign, to name a successor, and to name co-trustees are also important to include in trust instruments. Tax matters aside, a mechanism to remove and replace trustees is also advisable if the trust is going to last for awhile, such as for the life of a named person or persons.

3. Grantor Trust – or Not? In the case of a lifetime trust, one must always ask -- is this trust going to be a grantor trust for tax purposes, or is it going to be a separate taxpayer? Of course a revocable (living) trust is always a grantor trust. But in other cases the way the trust is drafted may control the income tax status. There are wealth transfer benefits to grantor trust status, not to mention flexibility for subsequent transactions. If grantor trust status is deliberately structured, however, it's important also to draft the trust with an "off switch" to terminate that status should it become preferable to do so in the future.

4. Be Creative! The renowned 19th century British scholar F.W. Maitland thought trusts were the greatest achievement of English jurisprudence. He may have exaggerated, but they are pretty great, and offer a chance for the estate planning attorney to be creative in tailoring a structure to suit each individual client's needs. Powers of appointment, unitrust interests, ascertainable standards, and interests for life are only some of the many tools available in the trust drafting toolbox.

5. Consider the Big Picture. Each trust, and indeed each estate planning document, is only one piece of the overall puzzle. Maybe life insurance should be in a trust for kids from a prior marriage, while retirement benefits should go outright to the surviving spouse, and the Will should divide property between the wife and kids. If a trust is used under a Will it may well have much different terms then one created during lifetime, even if for the same beneficiaries. For example, the client may want to have some property in a discretionary trust as a protected nest egg, but have other property in a trust with an annual payout or an ascertainable standard demand power. Thus, it's important to step back and consider the estate plan as a whole to see how the trust will fit in and contribute to achieving the client's goals.

Disclaimer – Postings Not Legal Advice

Monday, March 3, 2014

How to dispose of Tangible Personal Property in your Will

How to dispose of Tangible Personal Property in your Will www.zeekbeek.com

Introduction. Your clothing, jewelry, art work, photo albums, china, car, boat, furniture, and other physical possessions – these items are called your tangible personal property. Whether or not these are the most economically valuable part of your estate, when it comes to emotional value they are priceless. So how do you dispose of your tangible personal property under your Will?

In General. Sometimes you want to leave everything you own to one person, or to a group of people. For example, if you are leaving everything you own to your spouse, or everything to your children, or everything to your parents, then that includes your tangible personal property, so you probably don’t need a separate provision in your Will about your tangible personal property.

Making a Specific Bequest of Tangible Personal Property. But what if you want to single out certain items and leave them to certain people? In that case, you do use a separate provision in your Will to make those bequests. Let’s consider the following example, from the Will of a “Mr. Sherman Holmes”:

If my daughter Joanne Holmes survives me, I give and bequeath to her my gold class ring, if owned by me at the time of my death. If my brother Myron Holmes survives me, I give and bequeath to him all books written in the Latin language owned by me at the time of my death.

Let’s analyze this provision:

We have picked out certain items and given them to specific people, Joanne and Myron.
But only if that property is actually still owned by the Sherman at death.Why? Because Sherman might give away or sell that property between the time that he makes the Will and the time that he dies, and we don’t want that to lead to any type of confusion or even dispute between the person, say Myron, who was set to inherit the property under the Will, and the person Sherman gave or sold it to during Sherman’s lifetime.A Will is not effective until death, and a person retains every right to give away or sell their property during life regardless of what the Will says.
Also Joanne and Myron only get the property if they survive Sherman.Why? Because probably that’s what Sherman wanted.In other words, if Joanne has died, Sherman probably doesn’t want Joanne’s husband, or whoever else inherited Joanne’s estate, to inherit the ring. By way of comparison, consider this provision from the Will ofGrateful Dead musician Jerry Garcia:

GUITARS I give all my guitars made by DOUGLAS ERWIN, to DOUGLAS ERWIN, or to his estate if he predeceases me.

Here you can see Mr. Garcia did want Mr. Erwin’s heirs to receive the guitars if Mr. Erwin had died before Mr. Garcia, and so the bequest of the guitars does not depend on Mr. Erwin surviving, unlike in our example with Joanne and Myron.

You may be wondering, what happens to the rest of the tangible personal property that is not given to Joanne or Myron? In this example it falls into the so-called “residue” or rest of the estate, and is disposed of along with all of the other estate property to spouse, children, siblings and/or whoever else is inheriting the general estate under the Will.

Potential Problems with Tangible Personal Property. If family relationships are good it may be quite practical for two people to informally share an item – for example, Mom can leave her engagement ring to both her daughters and they can take turns wearing it. Alternately, by talking to family members ahead of time it is often possible for everyone to agree about the sentimental items each would most like to receive. When family relationships are strained specifying which sentimental item each child will receive may prevent dispute, and if one item is worth much more than the others, a compensating cash bequest can be made. But sometimes parents fear alienating one child by leaving certain items to the other(s). In such a case formal procedures may be required. One option is to direct the Executor to sell the tangibles and divide the proceeds, but allow family members to “purchase” (basically by exchanging the cash or other assets they would have received from the estate for the desired item). Another option is to use a rotating selection process where children, for example, take turns choosing the items they wish in a series of rounds, with a different person getting to pick first in each round (who chooses first in the first round can be decided by drawing straws). Any unselected items are sold and the proceeds divided equally without regard to the valuation of the objects selected.

Personal Property Memorandum. Some states – but not New York -- allow use a of personal property memorandum, which is separate from your Will but is mentioned in your Will. In that case basically your Will would say that if you leave a separate signed writing disposing of some or all of your tangible personal property, your Executor should follow it. The advantage is that you can simply make a list (as short or as detailed as you wish) of your personal property and who you wish to receive it, instead of having to spell all of that out in your Will. You must sign the list, you should date it (to avoid confusion about which was the “final” list), you should label it “personal property memorandum,” you should keep it somewhere safe but accessible (preferably with your Will), and you should not contradict anything in your Will. For example if you leave your piano to your son in your Will, you should not leave it to your daughter in your personal property memorandum. As noted, some states do not allow personal property memorandums so you need to check that before using one.

Disclaimer – Blog Not Legal Advice