Financially Speaking

Have you talked with your family members to see what they want?

One of the most contentious issues when distributing an estate can be the division of personal effects and heirlooms. Unlike the monetary assets, many personal effects evoke emotional reactions from family members, who may have very strong memories attached to a particular item. Therefore, even though some of these items may not have significant financial value, they may be a lightning rod for disputes amount family members. Here are some of the things you can do to minimize arguments after you are gone.

Discuss the Issue with Your Family

Have an open and frank discussion with your family about how it may be best to divide your personal effects, and which items mean the most to which person.  If your beneficiaries cannot come to an agreement on their own regarding who will receive what, you may have to decide for yourself how you would like things to be divided, but at least you can communicate your wishes in advance to try and prevent disputes. Once you (and your family) have decided how to divide your heirlooms, here are a few options for communicating your wishes:

• You can leave certain items to specific people in your will, which is a binding document which your personal representatives (i.e. your executor) must abide by. However, every time you change your mind regarding any particular item, you will have to change your will, which could be somewhat cumbersome and expensive. As well, if any item is sold, lost or destroyed, the personal representative will not have the discretion to simply replace that item with something else. Some people also spend so much time agonizing over how to include these items in their will that they die intestate (without having made a valid will or other binding declaration) – do not let the decision regarding personal effects sabotage the rest of your estate plan.

• You could write a list or “memorandum”, and keep the list with your will. Although such a memorandum is generally not binding (unless signed prior to the will and specifically incorporated into it), it should provide some direction to your personal representatives. Also, remember that if you want the memorandum to be part of your will (and therefore binding), that it must be probated with your will – if you would like to keep these matters private, then it may be best to simply have a letter which is not part of your will, assuming you can trust your personal representative to carry out your wishes.

• You could use an informal system such as putting a piece of masking tape on the back of various items with their name on it, or letting people know your wishes verbally. However, the less formal your system, obviously the more chance your wishes will not be carried out.

Letting Your Beneficiaries Decide

If you and/or your beneficiaries are not sure which items they may want (particularly if you are still young, and it could be a long time before your assets are distributed), then it may be best to simply state in your will that your personal representatives are to divide the personal effects using their discretion. Here are a few things to consider when including this type of clause in your will:

• If your beneficiaries are adults, you could allow each person to choose and item, and also provide that whoever chooses first during the first “round”, would choose last the next time, and so on. For example, perhaps the oldest child could choose the first item, with the second child then choosing the second item. However, the second child would then choose the third item, with the older child then choosing the fourth item, which could provide for a more equitable distribution.

• If there are one or two items which are particularly valuable, you could provide that if a beneficiary chooses that item, they will receive less of the estate (e.g. $5,000 less, $10,000 less, etc.). Again, this can help to minimize disputes if there is concern that one person will choose a particular item (such as a classic car, grand piano or valuable artwork) simply for the financial gain, with the intention of selling it later. If you know that one particular beneficiary has an emotional attachment to a particularly valuable item, then it may be best to specifically leave it to them in the will (although again, perhaps the other beneficiaries should be compensated in other ways).

• If you have children, and the first parent of those children is already deceased, consider whether it is a wise idea to allow the personal representative of the estate make these decisions, particularly if the personal representative is a new spouse. Unfortunately, there have been many situations where a new spouse has inherited all of the jewellery, photographs and personal effects of a deceased parent, meaning that the children will likely never see those items again. This can be a particularly painful experience, and an issue that should not be overlooked. If the children are old enough, perhaps consider leaving them some of these items now, to prevent arguments between them and a surviving step-parent.

Understand the Costs Involved in Bequeathing an Heirloom

If there is a particularly valuable item, consider whether or not it will result in a tax liability for the estate. For example, if you own a very valuable piece of artwork which has appreciated considerably in value since it was purchased, then it is possible that your estate will have a tax liability in respect to that capital gain. If you leave the asset to one child only, but the tax liability is paid by the estate (meaning that it is shared by all of the beneficiaries), it could lead to resentment between family members.

The other potential problem with mandating that certain people receive certain items is there could be significant storage and maintenance costs if specific items must be held in trust for beneficiaries who are minors. Consider the practically of leaving certain items to various beneficiaries, particularly if some of them live far away, which means there could be significant shipping costs, either for them or the estate. You also need to consider if the recipient can afford the general upkeep costs of certain items. For example, if you pass on a boat, it will cost money each year to keep it running. Regardless of which method you use to distribute your personal effects, remember that each family is unique, and the solutions appropriate for someone else may not be appropriate for you. Always consult a lawyer to help ensure your will reflects your wishes, and don’t forget to speak to your Investors Group Consultant for helpful advice about ways to pass on your heirlooms, give you peace of mind, and leave a lasting and positive legacy for your beneficiaries.