SWEAT THE SMALL STUFF: DON’T FORGET TO ADDRESS PERSONAL ITEMS IN YOUR ESTATE PLAN

When we normally think about estate planning, it’s natural to focus on assets of major significance, such as bank accounts, brokerage accounts, real estate, business interests, and retirement assets. However, we always recommend that our clients give consideration to the disposition of items such as artwork, jewelry, musical instruments, furniture, antiques, clothing, and collectibles. In some cases, the value of these items may not be as insignificant as you think. In others, their perceived value to your family members may be greater and more important than their monetary value.

WHAT’S IT WORTH?

In some cases, depending on the size or scope of a particular collection, we recommend that our clients obtain an appraisal during their lives. You may be surprised to find out how valuable your artwork and other personal items really are. Furthermore, even if an item has little monetary value, it may have strong sentimental value to certain family members, 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 if one is required to be filed. Gifts or bequests of art valued at $50,000 or more will, upon audit, be referred to the IRS Art Advisory Panel.

Also, note that 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.

WHAT’S THE PREFERRED TRANSFER METHOD?

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. We normally provide for the incorporation of a "gift letter" in the Wills that we prepare. It is authorized by a provision of Michigan's Estates and Protected Individuals Code.  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. So, except in the case of the most mundane household items, we recommend that consideration should be given to how your personal property will pass upon death.

Another way in which to deal with an item of personal property is to make gifts during your lifetime.  As we grow older and downsize our environments, lifetime gifts become more advisable.  Perhaps we no longer wear certain pieces of jewelry or play a particular instrument that was so important to use when we were younger.  By making lifetime gifts, you not only receive the pleasure of making the gift to the person that you would like to receive an item that is special to you, you may also be eliminating a cause for friction in your family following your death. Of course, depending on the value of the item to be gifted you should consult your tax advisor before making the gift.

 

Contact us if you need help addressing the disposition of your tangible personal property in your estate plan.