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Personal Property Items

Posted on June 9, 2015 | by ahrenstech

It’s natural that estate planning efforts focus on big-ticket items, such as real estate, business interests, retirement assets and brokerage accounts. But it’s important not to ignore the “small stuff,” like artwork, jewelry, furniture, antiques, clothing and collectibles. These items may not be as insignificant as one thinks. This post explains why it can be beneficial to appraise some items and plan ahead as to how they should be distributed.

 
You may be surprised to find out how valuable your artwork and other personal items really are. Plus, even if an item has little monetary value, it may have strong sentimental value, so failing to provide for its disposition can lead to hurt feelings, arguments among family members or even litigation.
 
It’s important to monitor the value of your personal property. For estate tax purposes, if an item is worth more than $3,000 — or if a collection of similar items is worth more than $10,000 — a written appraisal by a qualified appraiser must accompany the estate tax return. Gifts or bequests of art valued at $20,000 or more will, upon audit, be referred to the IRS Art Advisory Panel.
 
And professional appraisals are required for certain charitable deductions. For income tax purposes, for example, noncash charitable gifts worth more than $5,000 must be supported by a qualified appraisal.
 
If you plan to leave personal property to your heirs in a will or trust, it’s usually preferable to bequeath specific items to specific people. Transferring personal property through residual gifts — that is, gifts of assets left over after all other gifts and expenses have been paid — or allowing family members to choose the items they’d like to keep can result in disputes and, in some cases, unexpected tax liabilities or other negative tax consequences.
 
Although it is preferable that you specify who gets what piece of property, that is not what people usually do. A Will often says something like: I leave all my tangible personal property to my children in equal shares and they may decide amongst themselves what property each is to receive. This is a great idea in theory. You cut down on the amount of work you have to do going through all your property and identifying who you want to receive that item. In some instances it can work.
 
A recent case in the news is a perfect example of what it looks like when it doesn’t work. This is the case involving Audrey Hepburn’s (star of Breakfast at Tiffany’s) two sons from different marriages. Ms. Hepburn’s estate plan left her personal property to her sons in equal shares. It did not specify which son was to get what piece of property. The personal property at issue is a storage locker containing various items – including fashion accessories (such as jewelry, scarves and hats) as well as posters, awards, scripts, and photographs. Apparently the sons had a good relationship, even starting a foundation in their mother’s honor. But the relationship has broken down and they can not agree between themselves who should take what property from the storage locker.
 
Now a court will decide who gets what property. What could Ms. Hepburn have done differently? She could have specifically identified who would get what property. She could have included in her planning document that if her children could not decide amongst themselves—within a specified period of time– that all the property would be auctioned and the proceeds split between them. If they truly wanted to keep the items as sentimental artifacts of their mother, this might be a very good incentive for them to work something out between themselves.
 
Practical Advice
 
Before you choose a beneficiary for your collection, sit down with your family and find out who—if any—of your heirs even want the items. One heir could prefer cash instead of your rare records, while another may feel a strong connection to them. You want to avoid surprises and hard feelings when the will is probated. You also need to give thought to your goals for the items. Do you want them to become family heirlooms passed from generation to generation? Who would be the best steward of caring for the collection? You may find that your family does not want the collection and you can then decide if a museum would benefit from having the collection.
 
Also, consider passing on the collection while you are still living. You may gain great joy by seeing someone you care about enjoying something that had meaning to you. Just remember, that in 2015 you can give individuals up to $14,000 in cash, securities and other assets ($28,000 for a couple) without having to file a gift-tax return. Anything above $14,000 counts against your 5.43 million dollar federal tax exemption when you die. The federal estate tax is 40%. Minimizing the tax bill is one advantage of giving away items before you die.
 
The unfortunate reality is that often when a parent dies, relationships between siblings deteriorates. It is hard to want to think about your children not getting along because of fighting over your personal items, but consideration should be given to this possibility when planning for the disposition of personal items.
Posted in Elder Exploitation, Elder Law, Estate Planning, Trusts

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