Having settled many an estate over the years, there is one thing all the dearly departed have in common. They all died with tangible personal property. Another commonality, their personal property was a source of contention among their heirs. While financial assets are typically easier to distribute, distributing personal property can present unique challenges such as emotional attachments, security concerns, valuation disagreements, pointless procrastination, and disproportionate allocation among heirs. With deliberate, mindful planning, many of these common pitfalls can be avoided. By way of example, let’s explore the multifaceted dimensions of a fictious, soon to be deceased individual, Mr. Cliff Hanger.
Cliff, a widower, has two daughters, Sue Mihermana and Sia Encort. Cliff has led an interesting life: traveling extensively and collecting many interesting keepsakes along the way; shooting competitively with Grand Rapids Rifle and Pistol Club; and restoring a vintage 1960 Chris-Craft 23 Sea Skiff—a project he and his daughter, Sia, have taken on together. Before embarking on his next adventure to Northeast Utah, Cliff meets with his estate planning attorney to update his estate plans. Good thing because while exploring Flaming Gorge, Cliff unexpectantly dies when a faulty carabiner gives way. As he plummets to earth, Cliff has one last comforting thought that at least his affairs are in order, and he can rest in peace. Little did he know…
Chaos ensues as Cliff’s personal representative/executor, Tad Hasty, begins to settle his estate. While Cliff has a will, it does not provide any specific instructions on how to divide Cliff’s tangible personal property. Only that his assets are to be divided equally between Sue and Sia.
A good estate planning attorney will include a provision in your will or trust specifically addressing the distribution of your personal property. For example, your will and/or trust may include language stating, “I may leave a list signed by me that specifies gifts of tangible personal property.” Memorializing your wishes for the distribution of particular items to your heirs with a memo is the easiest and most straightforward way to avoid conflict. These memos may be updated as property is acquired or sold or your wishes change. The memos do not require an attorney to draft. Consideration should be given to your loved ones’ requests as well. Have a conversation with them regarding their preferences and expectations and collaborate among the group to resolve any ambiguities or disagreements before your death. Your estate plans should also include a systematic method for settling disputes over personal property. It may, for instance, require the trustee or personal representative to appraise the property and then allow each beneficiary to select in rotation (the order of choice to be determined by lot) an item until all have received approximately equal value.
Sia, of course, wants the Chris-Craft and, in turn, will gladly let Sue have the rest of their father’s stuff. Sia will cherish forever the time she spent with her father restoring it. She has put so much time and energy into restoring the boat, she would argue that the boat really belongs to her anyway, despite the boat’s title reflecting Cliff as the sole owner. (Cliff thought it prudent not to title a motorized vehicle in Sia’s name given her suspended license.)
The transfer of titled motor vehicles, such as boats and automobiles, to heirs is handled in a different way from other tangible personal property. Assuming the vehicle was not held jointly with another person, under current Michigan law, the personal representative assigns the title to the new owner who then furnishes the Secretary of State with the original title signed by the personal representative, a copy of the personal representative’s Letter of Authority, proof of insurance, and a valid driver’s license. If there is no probate estate or surviving spouse and several next-of-kin, they may transfer the vehicle to the new owner by presenting the title and death certificate along with a Certification from the Heir to a Vehicle form (TR-29). However, the next-of-kin with no interest in the vehicle must complete the Certification from the Heir to a Vehicle form (TR-34) to this effect. Incidentally, a bill will be introduced in Michigan this upcoming legislative session to permit beneficiary designations for motor vehicles and watercrafts. If passed, many of the pitfalls associated with transferring motor vehicles to heirs could be avoided by simply executing a transfer on death form. Sidenote: Michigan prohibits permitting someone with a suspended or revoked license to operate a motor vehicle. This includes motorboats. Violating these rules can result in charges and fines.
Sue has little use for any of Cliff’s personal property, most of it she considers junk. In addition, she has no time to pick through and sell Cliff’s knickknacks.
A conscientious personal representative will retain the services of a professional estate sales company to help sort, price, organize, and clean up after the sale. The responsibility should not be thrust upon the beneficiaries, unless they insist. Experienced estate sales companies understand how to price items appropriately; have established markets to attract more buyers; and bring organization and professionalism to the process. They also handle the logistics, security, and legal aspects of the sales process, alleviating much of the stress for the beneficiaries.
In Sue’s opinion, the only other items of value are her father’s competition pistols. Sue supposes Tad could sell the handguns to her cousin, Ben A’felon, and give her the proceeds. Ben is very interested and said he would pay “top dollar.”
There are specific federal and state laws in place governing the transfer of firearms. The National Firearms Act of 1934, Gun Control Act of 1968, and the Michigan Firearms Act 372 of 1927, amended on April 13, 2023, to name a few. If selling firearms to a private individual, the personal representative should coordinate the sale through an individual or company holding a Federal Firearms License (FFL). They will be responsible for conducting a NICS background check on the prospective buyer and submitting the required paperwork. For the transfer of handguns, the licensed dealer must also prepare a MSP RI-60 Pistol Sales Record which is provided to local law enforcement. Transferring a firearm to a known prohibited person—any person convicted of a felony or certain misdemeanors or with a serious mental condition–can result in serious legal consequences for the personal representative, including criminal charges, fines, and imprisonment. Class III firearms demand even more scrutiny. These firearms require new owners to be approved by the Bureau of Alcohol, Tobacco, Firearms and Explosives (BATFE). Approval can take up to a year.
Still, the proceeds from the handguns won’t come close to the value of the Chris-Craft. Sia, on the other hand, contends that the Chris-Craft has little value since it’s in the middle of being restored.
Valuing items accurately and equitably can be challenging, especially for unique or valuable possessions. Disputes may arise over the appraisal process, with heirs contesting the assessed value of certain items. Hiring a qualified appraiser is essential. They can generate a precise and reliable report used to itemize the property for reporting purposes and manage the equitable distribution of assets among heirs. For unique assets such as fine art, jewelry, or collectables, a specialized appraiser trained in advanced methodologies and possessing market knowledge ensures a more accurate and detailed assessment, providing the personal representative with a higher level of confidence on which to base their decisions.
In Sia’s opinion, the deal she is proposing is fair and Sue should be happy. Tad agrees. Wanting to quickly settle Cliff’s affairs, he prepares to transfer the boat to Sia, sell the guns to Ben, and give the cash proceeds and Cliff’s remaining personal property to Sue. Sue is not happy and immediately hires an attorney to file a claim with Kent County Probate Court. Infuriated, Sia vows that if she can’t have the boat, no one can, and sets it ablaze one desolate night.
As a fiduciary, one of the most important duties is preserving the value of the estate. With regards to personal property, this means securing the property and maintaining adequate insurance to mitigate the financial risks associated with unexpected events like fire, theft, natural disasters, or accidents. Securing the property may include changing the locks on the decedent’s home, confiscating all vehicle keys, or even relocating especially valuable items to a monitored, secure facility. Additionally, if the insurance coverage ceases at the decedent’s death, the estate is financially exposed if an unauthorized operator gets into an accident or if the vehicle is stolen or damaged prior to transfer.
What lessons have we learned from the ill-fated distribution of Cliff’s personal property?
- Managing a decedent’s personal property presents numerous unforeseen challenges.
- If not handled properly, the personal representative can be exposed to fines and/or jail time, and the value of the estate may be severely compromised.
- It’s best to appoint a personal representative with the experience and resources necessary to effectively manage and protect your tangible personal property while preserving your family relationships.
Working with your advisors and other professionals, Legacy Trust helps clients navigate the complexities of wealth transfer to ensure your intentions are fully realized. Our experienced Wealth Advisors shoulder the burden of settling estates, handling everything from start to finish with professionalism and care.
Kelly DeRidder, CTFA®
Senior Trust Officer
