There are essentially three kinds of property covered by estate plans. These are:
- Real property. This constitutes any real estate, whether land, buildings or condominiums.
- Intangible personal property. These are savings and investments in bank and investment accounts. Stock or partnership interests are also considered intangible personal property.
- Tangible personal property. This refers in essence to anything you can touch, other than real property. So it includes jewelry, furniture, artwork, silverware, and sporting equipment.
Tangible Personal Property
Wills often deal with each type of property separately, in part because people may want to distribute them differently, but also because tangible personal property by its very nature cannot be divided exactly equally. Wills may give specific items to designated individuals or leave it to the personal representative to distribute as equitably as possible, or a combination of both, listing a few significant assets and directing that the rest be distributed as the personal representative determines to be fair.
A third alternative is for the will to direct that tangible personal property be sold and the proceeds distributed equally among the heirs. This allows for the most equal distribution in terms of financial value, but often tangible personal property has much more sentimental than monetary value, so this approach may bring the least satisfaction to the beneficiaries.
Again, personal representatives often use a hybrid approach, distributing the property people want as equitably as possible, and selling the rest. Or in contrast, if the estate has only a few items of significant value, selling those so that the cash can be shared equally and then taking turns choosing other items. This is what a friend of mine and his sisters did after their parents died leaving one very valuable painting that their parents had rescued when fleeing Austria in advance of the Holocaust. They were able to sell it at Sothebys. (Also, see my article on the Next Avenue website about the system another friend used in divvying up an estate with a myriad of types of property with some monetary value and greater sentimental interest to the heirs.)
Probate Avoidance
Sometimes the primary purpose of a will is the distribution of tangible personal property. Many individuals plan to avoid probate through the use of beneficiary designations, trusts and joint ownership. However, it’s not clear whether this is possible with tangible personal property. Some practitioners have their clients attempt to transfer their tangible personal property to their trusts through the execution of assignments. The effectiveness of this practice may vary from state to state.
However, the reality is that few people probate estates simply to distribute the tangible personal property. Most families handle the distribution informally and seek to follow the wishes of the decedent as expressed in their will or in other documents. A formal probate is necessary only if there’s a dispute among the heirs and the personal representative needs formal authority to distribute the assets or the personal representative needs to establish legal title to transfer an asset, often property of significant value such as antiques or artwork.
But What About Cars? Or Boats?
We recently had a client asking about the disposition of a car. The will in this case directed the tangible personal property to one beneficiary and the residue of the estate to others, so the meaning of “tangible personal property” with respect to automobiles had real significance. While automobiles have some the indicia of real estate — formal title and registration — they are in fact items of tangible personal property.
This is also true of some other “big-ticket” items, such as motor homes and boats.
One difference between automobiles and other items of tangible personal property is that under Massachusetts law (M.G.L. Ch. 90D, Sec. 15A) if the automobile is going to pass to a surviving spouse, there’s no need for probate. This applies to personal vehicles, but not to vehicles registered as commercial.
And Cash?
Finally, what about cash or coins? It appears to be tangible personal property since you can touch it. But it’s a financial item like stock or bank accounts. The answer is that even though cash is tangible, in that you can touch it, it represents financial value that is intangible. From that point of view it is no more tangible than a bank statement. For estate planning purposes, it is treated as intangible persona property.
The only exception is cash or coins that are collectibles. Although they may used for financial transactions, they have more value on the rare coin market and should be treated as tangible personal property.