Planning for Tangible Personal Property from the Mundane to the Unique
One of the many reasons a person creates a Will is to specify who is to receive or what should happen with their tangible personal property when they die. Tangible personal property is generally defined as personal property that can be touched. Household furnishings, books, tools, jewelry, motor vehicles and boats are some of the items which fall into the category of tangible personal property. The value of tangible personal property may range from very nominal value e.g., old pots and pans to considerable value, for example, art, stamps and coins, gold bullion and gold and silver bars. To avoid any confusion as to what a person considers to be the tangible personal property a Will should include its own definition of that term and specifically carve out of that definition any items that the person may want to leave specifically to one or more persons, or perhaps fall in the typically larger “rest and residue” provision of the Will. This is especially true when the beneficiaries of one’s residuary estate are intended to be different than the beneficiaries of one’s tangible personal property. A safe deposit box is not an item of tangible personal property, but the box could include items of tangible personal property. Therefore, the Will should make clear what the intent is concerning the distribution of the box and the items in the box.
Providing for the equal distribution of tangible personal property among a group of beneficiaries in equal shares may be problematic when one or more items hold significantly more value than the other items. For example, it is not realistic for multiple beneficiaries to inherit a valuable painting or a large boat. In these cases, it may be better to direct that these more valuable items be sold and the Will would direct how the proceeds of the sale are to be distributed. When boats or cars are still subject to a lien, these items will need to be sold in order for the title to be transferred out of the decedent’s name. Accordingly, it may be best to specify that these types of assets will be sold or provide that a beneficiary may have the option to use his or her part of the estate to buy the asset from the estate at its appraised value. The Will may also provide for equalizing distributions of cash from the estate so that if one beneficiary receives the decedent’s expensive jewelry or a vehicle, the other beneficiaries could receive cash from the estate so that each beneficiary inherits equally.
Wills often contain trusts for the benefit of younger or disabled persons. It may be inappropriate to have these beneficiaries be the recipients of valuable items of tangible personal property. If a young or disabled beneficiary is intended to inherit items of tangible personal property, including a provision that directs the items to be held as part of the beneficiary’s trust may be the better solution, or held by a custodian until the beneficiary reaches the age of proper maturity. In the case of a disabled beneficiary, it may be best to exclude the individual from receiving the items altogether.
Thought must also be given to whether the packing, shipping and transportation of items should be an expense of the estate or borne by the individual beneficiaries. Art, valuable collections, pianos and other fragile items, are expensive to insure and to ship.
More careful planning is required for the following types of assets that are governed by federal, state and local law:
Firearms - The mere possession of certain unregistered weapons may be a federal and/or state crime. The Federal National Firearms Act governs machine guns, sawed off guns, silencers, mortars and pen guns. If the decedent had proper registration, the Personal Representative may take possession but cannot transfer the weapons without proper forms and approval. Proper registration can require the new owner to obtain signature of chief law enforcement officers. The Federal Gun Control Act imposes additional restrictions on certain weapons, including assault weapons, plastic guns, machine guns, armor piercing bullets and body armor. States have similar restrictions and some firearms that may not be covered or restricted by federal law, may be covered by state law. Certain individuals are prohibited from being gun owners, for example, a person convicted of a crime or who has been adjudicated mentally defective, a fugitive, an illegal alien and anyone who has received a dishonorable discharge. It is a crime to distribute a gun to a prohibited person. However, some firearms fall within a safe harbor such as possession or transportation of weapons in a non-functioning condition and used in curios, antiques or as ornaments. For planning purposes, it is best to condition the gift of the firearm to a beneficiary who can establish his or her right to receive and carry a weapon. More advanced planning can involve the use of gun trusts as owners for NFA guns to avoid transfer restrictions. A limited liability company or a limited partnership may also be established for the purpose of owning firearms.
Alcohol – The transfer of valuable wine collections or other alcohol is governed by state law and may require a license. No exemption is available for distribution made in accordance with a Will or a Trust. Special valuation of a wine collection or alcohol by other spirits may require the use of a qualified appraiser. A sale of these items by the Personal Representative of the Estate is not usually a good option because the proper storage of these items cannot be guaranteed.
Endangered Species, Ivory & Regulated Artifacts – Federal laws and treaties restrict the ownership of and trade of products derived from endangered species. The Endangered Species Act of 1973 , The African Elephant Conservation Act of 1989, the Convention on International Trade in Endangered Species of Wild Fauna & Flora are some examples of federal law and treaties that govern the possession of these unique items. There is a growing list of plants and animals in which there are blanket prohibitions against possession and transportation of same. Possession of certain items are considered to be strict liability crimes that carry severe penalties. The rules and laws pertaining to the possession and transfer of Asian Ivory is detailed and complex. The ability to document ownership and origination of ivory heirlooms may be extremely important to provide to the executor of one’s estate and to the beneficiaries.
Aircraft & Boats – Transfer and ownership of aircraft is handled by the Federal Aviation Agency. Personal property taxes may apply. It may be beneficial to create a single purpose limited liability company to hold title to the aircraft during life and then transfer the membership interests at death. Boats, depending on their size, are subject to different regulations. Some small boats require modest paperwork to transfer ownership. Medium size and motorized boats usually require registration with the State. Vessels with a volume of 5 net tons must be registered with the National Vessel Documentation Center.
Pets – One’s pets are considered to also be tangible personal property. A growing number of states have enacted laws permitting pet trusts. These trusts allow for money to be set aside and held in trust giving the trustee the power to make distributions to a custodian of the pet for the pet’s benefit. The trust may cover one or more pets and continues in place until all pets for whom the trust was established is no longer living. There needs to be a beneficiary named to receive the remaining funds at termination of the trust. Animal shelters or rescues may be a good choice. Trustee compensation should be specified. It is also advisable to consider the appointment of successor trustees and custodians. The amount directed into trust should be reasonable and a court may assume jurisdiction over the trust and reduce the amount if considered to be unreasonable. In lieu of establishing a pet trust, a gift of the pet together with cash may be made to an individual who promises to accept care of the pet as a condition for receiving the cash gift.
Livestock & Horses – Arrangements need to be made for the proper care and management of these animals to take effect immediately upon death. The selection of managers and experts to deal with these types of animals should be made well ahead of time and communicated so that the care plan can be implemented immediately upon one’s demise.
Identifying one’s unique assets and carefully considering how best to distribute one’s tangible personal property helps to avoid disputes among one’s beneficiaries. Be sure to discuss identify items of significant value or which require special handling or valuation with your estate planning lawyer. A properly drafted Will that helps your Executor deal with these items appropriately will make their job easier and be appreciated by your beneficiaries.