Your estate plan is in tip-top shape. You and your husband have the trust set up, the updated will and a topnotch planning team of experts. The life insurance is more than adequate. If both of you died tomorrow, the distribution of your shared savings and investments to your heirs is all spelled out.

But what about the family cabin in Michigan? How will four kids share the benefits and the costs of owning it?
Who gets your husband’s prized collection of baseball cards, or that Miro painting you bought together on that romantic first trip to Europe so many years ago? What about your doll collection or your jewelry, especially that ruby brooch that was passed down from your great-great grandmother?

Too often, the best-laid estate plans fail to account for emotional assets. These are the possessions that may or may not be worth much money, but carry considerable sentimental value — “the stuff” as attorney William Graf calls it. And it’s that stuff that can easily split a family asunder.

“It can be a problem, no question about it,” observes attorney David Eyrich of Statman, Harris & Eyrich, LLC. “It’s like divorce. Sometimes the big argument is not over the $5 million but who gets the kitchen table.”

Graf, of Graf & Stiebel, agrees. “It’s funny how angst and stress can transfer to silly little assets.”

Why do people tend to avoid addressing these emotional assets in their wills or trusts? Local attorneys specializing in estate planning cite numerous reasons. First, most people don’t want to think about dying or making arrangements for the earthly hereafter. It’s fairly easy to tell your four children that the money will be split equally amongst the four of them. Sitting the kids down to discuss who gets the family heirlooms makes parents anxious about potential conflicts or jealousies. “You may have three daughters saying mom promised me her ring,” Graf observes.

People and their estate planners sometimes are so focused on minimizing taxes and avoiding probate that they forget or overlook those little things that can cause big problems, says Bernard L. McKay, an estate specialist at Frost Brown Todd LLC. “A common mistake is to assume our kids will work it out. Sometimes they do, and sometimes they don’t.”
“It makes people nervous, so it’s easy to put off,” Graf says. “Lawyers realistically want to deal with every possible provision. But sometimes the clients say “Stop! Please, no more!’”

Attorney Mark S. Reckman of Wood & Lamping cautions about assumptions. Parents may think, wrongly, that their kids are as emotionally attached to some possessions as they are. Or they find their heirs are more reluctant than they are to communicate about such sensitive matters.

“Mom and dad want what’s best, and to express their love for their children,” he says, describing a common scenario. “They want to give up money while they’re alive so they can see the kids enjoy it. But the kids resist thinking of the relationship on money grounds. They say, ‘I don’t love you because of your money’.”

Then again, children can be surprising about what they do value. “A daughter may say mom’s P&G stock is important to me. It’s not really the certificates, but what they represent — the sentiment” that holds meaning, he explains.
KEEP THE COTTAGE,
PRESERVE THE FAMILY

When it comes to a family cottage, cabin or vacation home, people often care more about the idea of the place, especially fond memories associated with it, than the place itself. “Not to be too metaphysical about it, but the family cottage is not really a place,” Reckman observes. “I mean, it is a place — on Crooked Lake in Michigan or St. Mary’s Lake in Ohio — but it’s also a frame of mind.”

How to handle such places in estate planning lead Michigan lawyer Stuart J. Hollander to write a guide to succession planning, Saving the Family Cottage. For many families, that summer vacation spot is remembered as the place they were happiest together, generation after generation, “the elixir that brought our family closer together.” So it’s a tragic irony, Hollander says, that when grandparents or parents die and the place changes ownership, “sorting out the particulars can shred the same family ties that the cottage made strong.”

Hollander, who recently was invited to speak to the Cincinnati Estate Planning Council, advocates creating a limited liability company (or LLC) to keep a vacation home in a family, and to help avoid or resolve the most common conflicts that arise among shared owners: who gets to use the place and when, who takes responsibility for expenses (especially taxes and insurance) and upkeep, and who pays those expenses.
“These are perhaps the most unusual documents we’ve ever drafted,” says Singler. Different branches of a family may be involved, and the stipulations can be more complicated than condo association rules. Often one person is designated by the family to be the master vacation scheduler.

Reckman, who also helps families set up companies for cottage succession plans, says some children resist even the most sensible steps. In one case, the parents set up a partnership and were giving each of their daughters ownership shares as gifts, up to the annual tax-free limit of $12,000 under federal gift-tax rules. But the daughters objected.

“It’s not that they didn’t want the cottage,” he explains. “They just felt awkward with the whole process. It was like their relationship with their parents was put in financial terms or commoditized.”

Dealing with these kinds of emotional assets is “as much psychology as law,” says Graf. That’s why family psychologists are becoming involved in estate planning teams, even joining the Cincinnati Estate Planning Council.

“Business psychologists are very skilled at this,” Graf says, talking about the complex family dynamics involved. It’s easier to address and resolve issues in the planning stage than after death, he explains, “and they make clients feel at ease. I’ve been working with them a long time. They smooth the way.”

Those psychological considerations factor into Stuart Hollander’s expertise about estate planning and cottage succession plans. Bruce G. Douglass, a Michigan clinical psychologist who specializes in mediating family conflicts, had sought Hollander’s help in setting up an LLC for the Douglass family’s multi-generational beach cottage. The two men then became collaborators.
 
COMMUNICATING THE DETAILS
Experts say the best way to deal with emotional assets is to communicate with heirs up front, and make instructions clear — in writing — for when you’re gone.

“Mom and Dad need to discuss (these issues) with children,” Singler says, “such as why they’re gifting the art to Susie and not to Bobby. Maybe it means a lot more to Susie and they’ll make it up to Bobby by giving him the silverware.”
There are various ways to issue written instructions on the disposition of possessions and property. You can have a distribution list as an attachment, or codicil, to your will. With trusts, attorney David Eyrich favors attaching an exhibit that can be changed or updated without rewriting the entire trust.

Another option is leaving a letter to your executor or trustee, directing him to follow your instructions and asking family members to honor your wishes. Your trust or will can direct the person handling your estate to consult such letters, but they’re not necessarily binding. That’s where it’s important to choose either a trusted family member or professional as the executor or trustee. If you anticipate conflicts over your estate, an independent, dispassionate trustee may be best.

Some executors or trustees have good business skills and bad interpersonal skills, McKay points out. “If you appoint a bank or trust company, everyone can complain about them together,” he chuckles.

“In most cases the beneficiaries will honor the parent’s wishes,” McKay continues. “The problems come up when those wishes aren’t clear.” Too often, people are thinking emotionally and not legally when they draft these disbursement wish lists, he adds. They forget possible scenarios and leave gaps, such as what happens when one sibling dies before another. “If not done properly, it can create more problems.”
Don’t sweat the small stuff too much, Reckman says, “Unless it’s something of significance, give the executor the discretion to dispose of it as he sees fit.”

Estate planners need to be aware of other common oversights. One of those is the location of assets, Singler says. For example: great grandma’s grand piano is on loan to someone, with the understanding that later, after her death, it’s to go to someone else. But the person who has it thinks it was a gift. “The planner needs to ask these questions and have documentation,” Singler emphasizes.
Another common problem with these kinds of assets is that people tend to get rid of things as they age, Reckman adds. “You have a will that lists specifies 15 pieces of jewelry and 10 are missing.”
 
THE TAX ANGLE
Every estate tax return is supposed to itemize significant assets, and “sentimental items can create a tax issue,” McKay notes. “It depends on the type of asset and its monetary value.”
This is why Reckman advises caution in being too detailed about your itemized list of emotional assets. “To the extent it’s more formal, the more scrutiny you invite and the less privacy you have,” he comments. “If that porcelain collection is worth six figures, you can’t fool around” with the potential tax consequences.
And beware: both federal and state tax regulators are becoming more aggressive in checking out family valuables, including those given as gifts before death.

That raises the question of appraisals. Assessing the monetary value of mom’s heirloom jewels or dad’s classic cars can help distribute assets more equitably. Not knowing the value can cause pitfalls: a single work of art or a collection of rare dolls may drive the total value of an estate into the range where federal estate taxes hit.

When a professional appraisal is done for personal knowledge, not for insurance purposes, it could be considered privileged information, Singler says. But the IRS can ask for appraisals done for property insurance, and seems to be doing so more frequently, local attorneys say. “I haven’t seen many of those (cases) that resulted in less taxes,” Reckman remarks.

This is why gifting emotional assets while you’re alive is an option worth examining with your estate professionals. Under federal tax law, you can give gifts worth up to $12,000 per year ($24,000 per married couple) to each individual, up to a maximum lifetime tax-free gift limit of $1 million. Ohio doesn’t have a gift tax per se, but the applicable property tax has a three-year “look-back” provision to discourage people from gifting as a way to dodge estate taxes.

Singler adds another note of caution about appraisals: Many people think they’re hiring an appraiser to certify the authenticity of a possession. But some appraisers are not qualified to judge authenticity — they simply evaluate the value of a piece or collection on the assumption it’s authentic.
 
CONTESTED ESTATES
Local lawyers say the Hollywood image of greedy and ungrateful heirs fighting over every last scrap of an estate is overblown. “It’s amazing how little of that I see,” says Reckman, who finds most children want to honor their parents’ wishes.

What about those who don’t want share fairly like mom and dad taught them to do, or threaten to turn the custody of an heirloom into a legal battle? Money talks in many ways, and the cost of litigation makes many heirs think twice, according to Bernard McKay. “They realize I might win, but it might me cost be several thousand dollars in legal fees.”

Those conflicts can be headed off by parents with the courage and determination to resolve these issues while they’re alive, he adds. “Fighting comes in when proper planning wasn’t done.”