A Very Effective, (But Overlooked), Estate Planning Tool:

 

One of the greatest sources of friction, hurt feelings and outright fighting among heirs, is over personal items when someone dies.  Sometimes items go “missing” shortly after a death, different people swear on their life about what the deceased person said they wanted to have happen, or their Will or Trust simply says to split things between different people.  This friction happens in harmonious families just as easily as estranged ones.  Both Arizona and California provide for a person to transfer specific items of personal property outside of their Will or Trust via a Personal Property Memorandum.

Most people own inanimate objects that they cherish for either monetary or sentimental value. It could be a rare watch or a doll from one’s childhood. What happens to that piece of tangible personal property after a person dies? Most of us tend to imagine giving a specific object to a certain person that we hold dear or we feel would most appreciate the item.  This is where a Personal Property Memorandum is used.

What is and is not Personal Property?

Tangible personal property is what may be legally passed through a Personal Property Memorandum. This includes items such as jewelry, coins, guns (if not required to be registered with ATF), collectibles, artwork and furnishings.

Items that are NOT included are real estate, money, bank accounts, stocks, bonds, pension plans, IRA accounts, boats, loans or other evidence of indebtedness, property used in a trade or business, or tangible personal property that is disposed of under your Will or Trust.  These items must be passed through a Will or Trust; or in the case of bank accounts, pensions, IRAs, investment accounts, etc. in accordance with the contracts that govern them.

Requirements for Validity

1. The Personal Property Memorandum must have a valid Will or Trust referencing it.
2. It can be handwritten and must be signed and dated.  It does not require a witness to be present.
3. It can be typed and then signed and dated. However, I advise to have your signature notarized if you type the document to remove challenges to its validity.
4. The item being gifted must be described in a clear manner, so it is not confused with other items. Sometimes our clients have photographed artwork or jewelry, and we attach the photos to the Personal Property Memorandum. Photos can be easier than descriptive words at times, when you have more than one item of a similar description.
5. It can be created before or after the Will or Trust that references it.
6. It can be revoked by destroying it and creating a new one.  It should not be amended.

Although drafting a Personal Property Memorandum is recommended when creating a Will or Trust, it is not required. Tangible personal property can be distributed through a Will or Trust but if you ever decide to change the designation of an item or now want to ensure a certain item goes to a specific person,  you will have to amend your Will or Trust.  This can create unnecessary attorney fees or a deterrent from you making the necessary changes.  On the other hand, the Personal Property Memorandum can be redone at any time, without an attorney’s assistance.  I provide clients with a blank template of the Personal Property Memorandum so that they can update it as they wish over time and merely request that they send me a copy when they do.

Additional Considerations

Other considerations to note:

1. If an item you have designated in your Personal Property Memorandum no longer exists at your death, then the gift fails, unless you have provided a substitution.
2. When you are married, you may dispose of your separate property and one half of the community property, but not your spouse’s property.  Spouses will often indicate that a specific item passes upon the second spouse’s death or will indicate that some items will pass on their death and ensure their spouse is aware.
3. Items acquired after you created the Personal Property Memorandum can still be covered without requiring you to create a new Personal Property Memorandum. As an example, if I indicated that all of my rings go to my daughter, Elizabeth; then the rings owned by me at my death would pass, regardless of when acquired, to Elizabeth.
4. When the Executor or Personal Representative is instructed under the Will or the Trustee is instructed under the Trust to give the decedent’s personal property to a group of people, this leaves that person in a vulnerable position with the beneficiaries to argue with him/her. This is especially harsh when that is usually an unpaid family member, who is just trying to do their best.
5. If there is a conflict between what the Personal Property Memorandum gifts and the Will or Trust gifts, the Will or Trust will usually govern. But you want to know what your documents say on how a conflict is resolved.

A Personal Property Memorandum is a very effective document to help you pass specific items that you own to your family and friends in a way that is easy to self-manage throughout your life. It is also supports your family and friends by making your wishes clear and thereby avoiding unnecessary family fights and confusion. I encourage clients to use them.

Disclaimer – This article is for information purposes only. It is not intended to provide legal advice to anyone. If you require advice, you should reach out to our firm or another lawfirm to discuss your facts and circumstances to obtain legal advice.