The most consistent theme that we hear from people about estate planning is that they want things to be simple for loved ones. The prevailing wisdom is that if the proper legal documents are in place, the surviving family members will have an easier time winding up affairs. While it is important to have up-to-date legal documents, these are only half the story.
When I graduated from college, everything I owned could be packed into three bags. That sure made life easy when I moved to a new city. But that simple life has given way under years of accumulating personal property.
I have furniture, books, tools, automobiles, bicycles, golf clubs, camping gear, artwork, jewelry, computers, radios, TVs, children’s toys, games, yard equipment, kitchen appliances, decorations, clothing, paperwork, photo-graphs, and personal memorabilia of all sorts. I use much of this stuff regularly, but honestly, there are boxes, closets, and drawers filled with things that haven’t been disturbed for years. I like to think I haven’t accumulated as much as other people because I’m not particularly sentimental about things.
Unfortunately, I’m probably fooling myself. It is frightening for me to consider the task that my children would face deciding what to save, sell, or give away if I passed suddenly. The reality of dealing with this stuff became even clearer recently when my wife was sorting through a storage unit filled with items from her mother’s estate and found boxes and boxes of things that belonged to her grandmother, which had never been sorted.
Many of my clients find themselves in similar situations. So what steps can we take to “de-clutter” our lives and our estates from some of the stuff?
Here are a few suggestions that I offer to you and to myself.
Get Started. This may be the hardest part of the job. Pick a room, a storage unit, a closet, a file cabinet. Just choose one place to begin. If the job seems overwhelming, imagine what your family is going to feel if they have to undertake this task without your help.
Sort. Sort things into the following six piles:
Keep—Be honest. Ask yourself, “Do I really need this?”
Sell—You can try to sell your unneeded items on Craigslist or E-Bay or in a garage sale.
Give to family or friends—You are bound to find things that will be cherished by friends or family members. Delight them with a gift of your old treasures.
Give to charity—The Salvation Army and Big Brothers and Sisters run thrift stores that will pick up items you no longer want or need.
Throw away—Have a large garbage bag so you can throw things away. This is a particularly good idea when you are sorting old paperwork.
Treasure—You will come across some things that are genuine treasures.
One comment we consistently hear from our clients goes something like this: “I want things to be easy for my family with a minimum of hassles when I pass away.” What people sometimes fail to understand is that the degree of difficulty and hassle faced by the family when administering an estate is often directly proportional to the number and types of assets that are owned by the decedent at the time of death.
In the last newsletter I discussed ways to simplify your estate by discarding, donating, or giving away personal property, memorabilia, and “stuff” that you may not need or use. In this article I will discuss financial assets and investments.
As life goes on we tend to accumulate wealth in a variety of forms and types. Examples of financial and investment assets include: cash on hand or in safe deposit boxes; checking and savings accounts at banks or credit unions; investment or brokerage accounts; mutual fund accounts; retirement accounts (including IRAs, 401Ks, annuities, 403Bs, and pensions); escrow accounts; personal promissory notes receivable; business accounts, and commodity accounts.
In addition, stocks, bonds, ETFs, index funds, and mutual funds can either be held in a brokerage account or in a separate account for every investment. Some people still have stock certificates, EE bonds, I bonds, and gold coins in safe deposit boxes. Others own DRIP accounts for individual publicly traded stocks.
Every asset owned and every different custodian or financial institution involved creates a potential for inconvenience for your successor trustees and personal representatives. Therefore, the greater the number of accounts or investments held at the time of death, the greater the time and trouble for your family.
Here are some suggestions to help you simplify your investment holdings.
Hold Your Financial Investments in a Brokerage Account
Holding original stock and bond certificates makes estate administration more difficult because they are not easily liquidated or distributed to family. Publicly traded stocks and bonds should be held in a brokerage or investment account. Brokerages can also invest in thousands of different mutual funds and may hold gold and other commodities. Rather than creating different accounts for different mutual funds, all your mutual funds can be held in your investment accounts. And instead of holding individual certificates, Bonds can be held in a Treasury Direct Account.
Consolidate Bank and Credit Union Accounts
If you have multiple bank accounts and credit union accounts, try to consolidate your holdings into fewer accounts. Some-times our clients are holding just a few hundred dollars in a dormant credit union or bank account. Consider closing accounts that are not being actively used. FDIC insures bank accounts up to $250,000 per account. If you have a bank account titled in the name of your living trust, FDIC will insure the account for $250,000 for each beneficiary of the trust. If the trust is a joint trust with your spouse the FDIC insurance is doubled again. A couple with two children is insured up to $1 million per account held in a living trust. (2 spouses x 2 beneficiaries x $250,000 = $1 million).
Consolidate Your Brokerage Accounts
Consider holding all investments at one brokerage or investment firm. This will simplify your paper-work now and reduce the work for your successor agents, trustees, and personal representatives. Clients tell me that they have investments held at multiple brokerage firms because they don’t want to put all their eggs in one basket, but you can have your eggs in multiple investment baskets that are housed under one roof with one investment company.
Consolidate Retirement Accounts
Most people who have held multiple jobs over the years have accumulated a number of IRAs, Simple IRAs, Rollover IRAs, and 401Ks. Talk with your investment advisor to see if you can consolidate any of these accounts.
For most people it isn’t feasible to reduce all of their financial holdings to just one or two accounts with one or two banks or investment companies. However, it is rare that some amount of closing and consolidation can’t reasonably be accomplished. Even closing a couple of bank or brokerage accounts will simplify things for your successor trustees and personal representatives. You might find that it also simplifies things for you.
Fine artwork, collections, and jewelry pose a particularly thorny issue for successor trustees and executors who are in charge of administering a trust or probate estate. There are a number of questions you should consider when deciding how to handle this type of property.
What is the Artwork or Collection Worth?
People tend to over-value their fine artwork, collections, and jewelry. The estate value of such property tends to be much less than the retail value or the insurance or replacement value. Typically, auction companies and consignment shops charge commissions of up to 50% to sell fine art, collections, and jewelry. In addition, it doesn’t seem fair to require an executor to sell artwork or collections piece by piece on Craigslist, eBay, or some other do-it-yourself auction site.
What does it Cost to Maintain?
There is often a cost to keeping and maintaining large collections, including artwork. First: the cost of maintaining the space where the artwork is displayed or where collections are securely stored. Second: the cost of insurance, maintenance, and security of the property. Third: there may be estate taxes or property taxes that need to be paid to maintain the property in one collection.
Are You Sentimentally Attached to the Artwork or Collection?
Clients often develop a strong emotional attachment to their collections and hope that it means as much to others as it does to them. They also hope to keep the property intact as one collection after they pass away. But in reality, family members rarely have the space, financial ability, or passion to keep or store such property.
Is a Museum, University, or Charity Interested in the Collection?
Museums, universities, or other charities are always interested in donations of valuable property; however, they have policies that can limit their ability to take collections that do not conform to their charitable mission or purpose. More-over, sometimes charities will actually sell the artwork to raise money for other charitable purposes. Donors who expected their college or university to keep and display valuable artwork long into the future might be surprised to learn that it was sold to a private collection.
Can the Donation be Made While You Are Alive?
If you are able to complete the donation of your artwork or collections while you are alive, you will be taking a huge burden off of your successor trustee or executor.
How Can You Plan Ahead?
We asked Monica Shah, Director of Collections at the Anchorage Museum, the best way to plan for your artwork and collections. “We love it when people think of the museum as a possible home for art that they have enjoyed and cherished,” she said. “While the museum can’t accept everything, we have been extremely fortunate to receive donations that are wonderful additions to our growing permanent collection. It is a privilege for us to help people who want to leave a legacy with their art.”
Ms. Shah suggested that art donors consider notifying the charity while they are still alive to start the donation process. This will allow the donor and the charity to work out any special details or problems that might arise.