Many estate plans make use of a list that identifies items of tangible personal property that are to be allocated among designated beneficiaries on the owner’s death. The list is usually incorporated by reference into a Will or a Trust, such as: I may leave a list that is attached to this Will, and if I do so, I direct that such list be treated as a part of this Will and that that the tangible personal property identified on that list be distributed to the designated individuals.
Unlike the Will, the list is usually prepared by the owner of the items and not the owner’s estate planning attorney. Accordingly, the use of an attached list to a Will results in some “do-it-yourself” estate planning, which can lead to problems. This practice of distributing items pursuant to an attached list has evolved over time for several reasons. Often the person who creates their list changes their mind as to who is to receive what item, so over time, multiple lists might be created. Or, the list may need to be periodically updated if a described item is lost, destroyed, or replaced by another item. Perhaps the most practical reason for the prevalence of attached lists is that rather than incur the delay and expense of having an attorney update a Will to make changes in order to specifically bequeath an item to an individual beneficiary, it is easier for the owner to create and update their own list without their attorney’s involvement.
Michigan’s law is clear that if a writing, or a list, is in existence when a Will is executed, or if the writing or list is prepared even after the Will was signed, the list may be incorporated by reference into the Will, but only if the language of the Will manifests this intent and the Will describes the writing sufficiently to permit its identification.
This practice of incorporating a list of tangible personal property can also be used with a revocable Trust and is usually carried out by the trustee and enforced. However, problems can arise with regard to the validity of the list attached to a Trust if the list is intended as a formal amendment to the Trust, when the Trust instrument directs a precise procedure for when and how a trust amendment will be made and enforced.
A list that is incorporated by reference in a Will takes precedence over a general bequest of tangible personal property in the Will. However, the list must either be in the individual’s handwriting or signed by the individual at the end of the list, and it must describe the items and the recipients with reasonable certainty. A list that directs the distribution of tangible personal property among several designated beneficiaries need not have any significance apart from its effect on the disposition of tangible personal property under the individual’s Will.
But as a note of caution, only tangible personal property may be referenced in a separate list. Therefore, money, evidences of indebtedness, i.e. promissory notes, documents of title, and securities will not be validly disposed by such a list that is incorporated by reference in a Will, since they are items of intangible personal property.
If an individual intends to prepare their own list and attach it to their Will, then consider the following practical drafting pointers to minimize confusion interpreting the list or to avoid conflict among the recipients named in the list.
Multiple lists-supplement or replace? If one of the reasons that a separate list is used is to periodically enable the list to be easily updated without having to visit an estate planning attorney, then there is a risk is that multiple lists might be discovered after the owner’s death. Are the multiple lists to be interpreted as one larger list, or is a later list intended to replace an earlier list? It is difficult to discern what the most recent list is if multiple lists are not dated. Consequently, it is important to both sign the list at the end and also identify in the most recent list if it is intended to supplement or replace an earlier list.
Address When an Item No Longer Exists: The list should formally address what happens if an item no longer exists at the time of the owner’s death. Was the missing item given away during lifetime? Was the item lost or destroyed? Was the item sold or traded for a replacement item? Does the replacement item take the place of the non-existent item? Unfulfilled expectations can lead to pretty wild claims, e.g. “I was supposed to get Mom’s diamond ring, which we can’t find; I am sure that the ring was worth $10,000, so I will be okay with taking $10,000 cash from Mom’s estate as its replacement.”
Provide a remedy for missing items: The list also needs to address what happens if an identified item on the list earmarked for a recipient cannot be found or no longer exists. Does the disappointed recipient get to choose another item that has not otherwise been bequeathed? If an alternate choice is to be provided, is there a dollar limit on the selected replacement item or a limited pool of other items of tangible personal property from which a replacement selection can be made? It is important for an attach list to address this “What if..?”
Use caution when using the word “equal:” Caution is required when using the word equal to describe who is to receive what under the attached list. A list that says “I leave my jewelry to my grandchildren equally” can be interpreted different ways. Does the use of the word equal mean each grandchild receives jewelry equal in value, or does equal mean that each grandchild receives the same number of pieces of jewelry in the decedent’s jewelry collection? If the word equal is used in the list, the intent behind that word needs to be fully described.
Determining value: If items or collections of items are to be distributed among a group of recipients, e.g., “I leave my coin collection to my grandchildren in shares of equal value” then the list needs to also contain directions on how values are to be determined so that equality can be achieved among each of the recipients.
Retain records to identify values: Some items are relatively easy to value, like a Blue Book value for a vehicle. Other items of tangible personal property have their value dependent upon their provenance, like stamps or artwork. If there are no records of an item’s provenance it is possible that mistakes might be made in assuming values, or an intrinsically valuable item is overlooked and simply treated as part of a generic collection, e.g. “I give my artwork collection to my grandchildren in shares of equal value.” If an item within the collection has a unique provenance, e.g. a numbered Picasso print, then that should be flagged as part of the list with reference to any supporting documentation that may be available (along with where to find that documentation.)
Be alert to items of grossly disparate value: What happens when one item within a collection, e.g. artwork, coins, stamps, guns, is determined to be of extraordinary value in contrast to the other items within the collection? That one item could cause an estate tax problem for the decedent’s estate. If all estate taxes are to be borne by the residue of the decedent’s estate, indirectly those beneficiaries who did not receive the item of extraordinary value will end up sharing in the estate tax liability caused by that one valuable item. If there is the possibility of one or a few items in a collection having extremely high values, then the decedent’s estate should direct the apportionment of estate taxes to those individuals who receive the most valuable items that cause the estate tax liability. In the absence of this express allocation of estate tax liability, resentment can build if one beneficiary receives an item of immense value yet all beneficiaries are indirectly burdened with the estate tax caused by that one item the others did not receive.
Address estate administration expenses: Some items of tangible personal property need to be stored, insured and shipped. Leaving a baby grand piano to a grandchild who lives in California can become problematic and cause resentment among beneficiaries if the expense of storing, insuring, and shipping the baby grand piano to California is treated as an estate administration expense, (indirectly borne by all estate beneficiaries). It would be wise to condition the bequest of such a large item to the recipient on his/her agreement to pay for storage, insurance and shipping. The same with expensive artwork that must be carefully stored, insured, and shipped to preserve its intrinsic value.
Anticipate ineligibility: Some beneficiaries may be ineligible to own an item that might be bequeathed to them under a list attached to a Will. A grandchild who is convicted of a felony cannot own a firearm under federal law. What happens to the specific bequest of that gun if that grandchild cannot own the gun that is left to him? Should the grandchild be able to select a replacement item of equivalent value? Can the grandchild direct the personal representative of the decedent’s estate to sell the gun and turn over the sales proceeds?
Address survivorship: Leaving an asset to a named individual should also invite the follow up question: “What if she is not living at the time of your death? Is the specific bequest to her contingent on surviving you? Is the bequest forfeited if she is not then living?” What happens to the identified item?
Add alternate dispute mechanisms: Death sometimes brings out the best in survivors. Sometimes it can also bring out the worst in survivors due to rampant emotions that surface after losing a loved one. How family heirlooms and items of sentimental value are identified, selected, and distributed fairly can often add to those emotions, particularly if there is not much guidance on questions of selection of item priorities, determining actual values, following a “fair” selection process, and the costs and expenses associated with delivering a specific “big ticket“ item to a specific recipients. Rather than thrash out their grievances in probate courtroom under the guise of interpreting an ambiguous list, it would be advisable to require some alternate form of conflict resolution, e.g. mediation, to address disagreements among recipients under a list attached to the owner’s Will.
If an individual plans to use a list to earmark specific assets for specific individuals and prepare their own list to carry out those wishes, he or she needs to anticipate and address on some of these potential problems that could exacerbate disharmony or dysfunction among grieving family members. The use of a separate list that is incorporated by reference in a Will is appealing, and in concept simple. However, without some advance reflection, it can also lead to a lot of headaches for the estate’s personal representative and acrimony among the owner’s survivors.