The Trickiest Part of Estate Planning

ways to efficiently distribute the residuary estate while reducing the probability of a will fight or family dispute. The appropriate method for your estate depends on family dynamics and your understanding of them.

Here are some strategies to consider. You have to decide which works best for your family.

§ If you are confident there won’t be problems, you can leave the residuary estate to the children and let them decide how to divide the items. Or you can name one of the children as executor and let the executor decide how to divide the residuary estate. The will might direct the executor to divide the residuary in equal shares among the children. Or it might direct the children to agree on a division under the executor’s direction. Many families are able to reach an amicable division this way.

If you are afraid emotions might take over, consider one of the other methods.

§ There is one surefire way to avoid conflicts. Direct the executor to sell everything that can be sold and distribute the cash to the heirs. Unsold items would be given to charity. Heirs who want a particular item or items can buy them at the sale. The executor decides on the sale process, and it should be one that does not allow one heir to have an advantage over others in obtaining an item.

§ Instead of listing each item of property and who should get it, you can label items as you decide who should receive them. You might put labels on the backs of artwork and on the bottoms of sculptures and furniture. Though the designations are not legally binding, you can mention them in the will as your preference for the executor to follow, and the executor and heirs usually respect them. Yet, you will have many items that cannot be labeled in this way. Worse, an unhappy family member can switch a label or claim that a label was switched or is not really your handwriting.

§ You can give the heirs an opportunity to agree on a distribution, then provide a back up if they do not agree. For example, the will can state the residuary estate will be distributed as agreed to by the beneficiaries, but if they do not agree within a certain time, the executor will sell or give away the residuary estate.

§ Finally, you can create a lottery system. You can decide on the system yourself or instruct the executor to use a lottery system of his or her own choosing. There are a number of possible lotteries.

The most common lottery probably is for the heirs to draw straws or names to determine the selection order. In the first round, the children each choose an item in the order drawn. In the next round, the selection order is reversed. Then they return to the initial order, and so on. If there are only two heirs, they can flip a coin to determine the first round order. The winner of the flip can be given the choice of either going first and picking one item or going second and picking two items.

Under this system, heirs pick the items that are of most value to them. That might be a problem if you want the heirs to receive equal value, either monetarily or sentimentally. In that case, one suggestion is to have the executor assign a value to each item and keep track of the selections. If heirs end up with unequal monetary values, the difference is made up with cash. Another approach is to allow heirs to choose only from items of relatively equal value in each round. That approach, however, is time-consuming and might not be practical with all estates.

Another lottery strategy is to let the heirs decide how to value items. There are a couple of ways to implement this strategy.

In one approach, each heir can assign a number of points to each item. By giving the items points, they are deciding how important each item is to them. After everything is valued this way, in the first round each person gets one item on which he or she placed more points than anyone else did.

The points assigned to the items are not likely to be equal. The person who assigned the most points to the item that he won doesn't select again. Instead, the others pick one or more items to which they assigned points until the total points of their items equal the total the first person placed on his or her item. For example, the first heir might "win" property to which he assigned 100 points; the second heir might have assigned 70 points to his winning item. The second heir gets to pick one or more items to which he assigned a total of 30 points before the second round begins.

A variation is to give each heir the same number of points as though they were dollars. They use the points to bid for items in the estate. If an item is particularly important to an heir, he might bid all or most of his points to ensure getting it. Under this approach, the heirs might end up with items of unequal economic value. But that should be acceptable because the heirs have determined the personal value of each item. More details on these two approaches are in the book, The Universe and The Teacup by K.C. Cole (Harcourt Brace & Co.; $13.00 paperback).

To make any of these systems work better, most estate planners recommend that in-laws not be involved. They seem to complicate an already complicated process.

If your estate is taxable, you need to keep taxes in mind. Someone must pay taxes on the items in the residuary estate (and the rest of the estate). You need to work with your estate planner to decide where the tax payments will come from.

Distributing the personal items can be the most complicated and difficult process of an estate. That is a reason some people distribute or dispose of many personal items as part of their planning process. One way to improve the results is to prevent surprises. Ask heirs and potential heirs if any of the items are of special value to them. Once you have made a decision, let the heirs know generally how the property will be handled. Estate planners generally believe that estate disputes and hard feelings are triggered more by surprises than anything else.


Bob Carlson is editor of the monthly newsletter Retirement Watch and the web site He also is author of the books The New Rules of Retirement and Invest Like a Fox…Not Like a Hedgehog.

Posted 06-05-2009 1:32 PM by Bob Carlson
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