All Articles

The Wealth & Wisdom Blog

Information on Estate Planning, Estate and Trust Administration and Unique Asset Planning

While recently helping my third-grade daughter with her math assignments, I had to “google” the exact definition of a “prime number.”  If your memory is better than mine, you will recall that a prime number is any number that cannot be made by multiplying two other whole numbers.  Just as prime numbers cannot be divided into whole numbers, some of our assets are not subject to an easy division among multiple beneficiaries following death. Some of our assets, especially sentimental assets, are simply indivisible.   In this month’s update, I summarize a two-part planning process to manage our “prime number” assets.*

Inventory Certain of Your Sentimental and Service Assets

First, you should inventory, on an itemized basis, certain of your assets that have sentimental or utility/service value.  You should list the item, where the item is physically located, and any additional information that would be useful for a family member to understand when they are deciding how to distribute the item following your death.

For sentimental assets, you might summarize how you came to hold the asset, and why it is sentimental.  If an item provokes a certain memory, a memory that might otherwise be lost, the physical possession of the item can serve as a memory prompt, what psychologists call the “Proust Effect.”  By providing your family with the narrative behind the memory prompt, your family will gain a deeper understanding of why you keep the item around and of your own legacy story. In some cases, in providing your family with this summary, you’ll find that the item provides the same “Proust Effect” with other family members.

For utilitarian or “service value” assets, you might summarize why that particular asset is valuable, generally, and why it might be valuable to others who receive it following your death.  Certain assets might have “stealth” value;” that is, assets that have more value than meets the untrained eye.  In the absence of disclosure of background information from you, and perhaps also special planning and direction, value may be lost to the family following your death.  Assets that have no more value than the item appears to a third party do not necessarily need to be inventoried.

Identify the Legal Structure for Transfer

Second, you should create the appropriate legal means of disposing of your assets.  If someone else would benefit from owning the asset even during your lifetime, you might give it away now.  Conversely, if you decide that an item has no “Proust Effect” on others, you can conduct some good spring cleaning and dispose of the items.  For those assets that you retain until death, you should create the legal structure for the proper distribution of the asset.

  • Specific Gift to Individuals Regardless of Value

A certain asset may have sentimental or service value to only one family member.  With this type of asset, you should use a tangible personal property list to specifically direct that a beneficiary is to receive the item regardless of its third-part value.

  • Selection of Assets Among Class Regardless of Value.

You might identify certain items, typically sentimental and/or household goods, that should be allocated to a “class” of named beneficiaries.  This class (e.g., children, grandchildren, or other family or close friends) would be given the equal right to choose among themselves, on a rotating basis, one item at a time, regardless of value, until all items are chosen.  Unlike a closed bidding process, this structure allows for those members of the class to freely chose items without regard to value without being constrained by any disparity in a personal financial situation.

  • Closed Bid Option to Purchase Remaining Assets

Finally, certain of your remaining assets could offered for sale by the estate or trust, and sale proceeds allocated to the estate or trust.  In these instances, it is common for the assets to be offered first to the family members before the assets are offered for sale to third parties.  If any family member has any sentimental connection to the asset, or would benefit from the service value of the item, the family member can purchase the asset from the trust or estate.  Especially for assets that have significant financial value (such as a family cabin), this structure creates the appropriate equity consideration for other family members to financially benefit from his or her portion of the sale proceeds.

Here are a few examples of how clients can manage indivisible assets:

  • Family Heirlooms. Mollie received her mother’s wedding ring.  Since Mollie has numerous rings of her own, Mollie should clearly identify which of the rings is the wedding ring, and how she wishes for this sentimental item to be distributed at Mollie’s death.
  • Professional or Personal Artifacts. Chris has old baseball equipment and other paraphernalia from his days of playing college and amateur “town ball” baseball. Chris has inventoried those items, and provided a narrative to his sons of why the items are meaningful to him.  He has directed that his sons can “take or give away” the baseball stuff after his death.
  • Service Items. Sheila owns a cabin where certain “service” assets are located, including docks and boats. Sheila’s daughter will be taking over the cabin at Sheila’s death as part of her “share” of Sheila’s remaining assets at death.  Sheila has therefore designated her daughter to be the recipient of the service items located at the cabin.

Later this spring, my daughter and I will be making my annual trip to the city dump as part of our annual “spring cleaning” project.  We will be able rid ourselves, in whole numbers, rather than fractions, with the belief that “less is more,” when it comes to possessing lots of stuff.  While there may be items that should be retained in ownership, there are also many items can be safely disposed of without any loss in any personal financial wealthy or loss of any “memory prompts.”