Marci and James are both in the 70s. They have three children and seventeen grandchildren. As Marci looks around their family home, she wonders, “How do I pass my gifts to my family when I die?” Marci and James have a current Last Will and Testament and a revocable living trust. They have an estate attorney who knows their family well and has counseled them for the last several decades. Marci is not alone. Many people think about who they would like to receive their retirement accounts, homes, and savings but forget about other possessions such as jewelry, clothing, sports equipment, cars, and other possessions.
Marci and James plan to inventory the major items in their home. They would like to have a family discussion on distributing these items, so they go to the children or grandchildren who value them most. For the items that are not claimed, Marci and James plan to donate them at some point in the future.
Retirement accounts, insurance policies, and other accounts that have beneficiary designations such as transfer-on-death or pay-on-death do not pass through your will unless they have no beneficiaries designated or the beneficiaries haven’t been updated at the time of your death. If this occurs, then these accounts become part of your estate and are handled by your will.
Your will contains instructions for your representative or executor to execute on your behalf. These instructions describe how your estate should be distributed. This includes your real property, such as your home and business, bank accounts, personal property, and specific gifts. Marci and James can take their inventory and the people who should receive each piece of property and add it to their will. Doing so will ensure that each person gets the gifts that Marci and James intend for them, and it will make this distribution very transparent which may decrease the number of family members who question the will.
State law will determine whether you can gift your pets using your will. Anything left after everything has been distributed according to the instructions in your will is called residuary gifts. James and Marci can provide instructions for their residuary estate in their will as well. They might instruct that everything left over be donated to charity or sold with the income donated to charity.
Marci and James have appointed their two oldest children as co-trustees of their trust. Their trust contains instructions on how their trustees will manage the property in the trust should they become incapacitated and upon their deaths. Marci and James have their home, several rental properties, and two businesses in their trust, as well as their bank accounts and a boat. By signing over their real estate and bank accounts to the trust, Marci and James can avoid probate for these items. Marci and James can also provide instructions for specific gifts and the rest of their trust property in their trust instructions if they would like.
A more informal document called a memorandum can be used to distribute tangible personal property in a will or trust in some states. The will or trust instructions will reference the memorandum. The memorandum needs to be signed, though it typically does not require a will or trust signing formalities. A memorandum makes it much easier to add or delete new items or change who will receive them. A memorandum would allow Marci and James to easily adapt their plan to new births, deaths, and marriages in their family.
Disclaiming a Gift
Preplanning makes it easy for Marci and James to determine which of their items are valued or not and by whom. It will decrease the likelihood that any of their property will be disclaimed or not accepted (refused) by the recipient. For tax purposes, in most states, there is a time limit of nine months by which the recipient must formally sign a legal document to disclaim the gift. If one beneficiary formally disclaims a gift, it will pass to the next one in line.
The personal representative executing the will and the trustee will deliver gifts safely to their recipients and supervise the process of dividing up or reassigning any remaining property items.
Marci and James included instructions in their estate plan for distributing their unclaimed property. Here are other potential options.
- Estate Sale/Auction: A company can be hired to auction off or facilitate the sale of any remaining property. This process is similar to a large garage sale. After the company receives its commission, any remaining funds are part of the estate and are distributed according to the terms in the will or trust document.
- Donation: Unclaimed property can be donated to a charity. If the will does not stipulate a preferred charity, the beneficiaries can cooperatively agree on a charity. Any agreement that may deviate from James and Marci’s expressed wishes would need to be documented in writing and signed by all beneficiaries. The estate usually bears any additional costs, such as transporting the items to the charity.
- Disposal: Any items that have not been distributed by another method can be disposed of. This option may be especially necessary when administering a hoarder’s estate.
Marci and James have worked with their estate attorney to develop a complete plan for passing on their gifts. They identified who would receive all specific gifts as well as any residuary gifts. They have a memorandum that they use to make changes to accommodate new family members by birth and marriage and loss of members by death. They took great care to develop a process that they deemed fair that ensures that items that specific family members most highly value will pass to that person.