The Tug of Love – Putting your Chatels in Order
Personal possessions can cause more arguments in probate than anything else, possibly because they often carry sentimental value and are believed to be more valuable than they actually are. A carefully worded letter of wishes or an open discussion with the family may avoid many complications, but with certain items, things may not be quite so simple.
Often it is left to the family to divide the personal possessions (chattels to use the legal term) between themselves. This may seem a straightforward way of dealing with the task, but only if everyone agrees.
Many difficulties can be avoided with a carefully worded letter of wishes. The letter can specify either who should have what or that beneficiaries should choose chattels in a specific order. For example the eldest could choose first and youngest last, then this can be reversed in the next round.
Although non-legally binding, letters of wishes are generally more flexible and in most cases the family will be happy to see their parents’ wishes carried out. Unlike changes to a will, letters of wishes can be drafted and amended by you at home easily and at little or no cost. It is generally better to keep the number of chattels listed fairly small though to avoid having continually to update the letter.
Monetary value, sentimental value, aesthetics and the practicalities of housing certain chattels will all play their part in what people decide they will want. Differences in value can easily be compensated with a balancing payment in cash. The independent valuation obtained for probate purposes will usually be accepted by the beneficiaries for this purpose.
It is more difficult for beneficiaries to benefit equally where there is one very valuable chattel. Selling it and distributing the proceeds is often the fairest approach, but you may want a chattel retained within the family, especially if it has a particular family history, sentimental value, or is associated with the family home. One answer may be to give to the eldest child or the child with the house that can accommodate it and simply ignore any notion of compensation on the basis that monetary value is immaterial if the item is never likely to be sold. But in practice it is almost impossible to guard against such a sale. It may be possible to do so using trusts, but that adds a level of complexity many may prefer to avoid.
Rotating the chattel between different beneficiaries poses practical difficulties especially in relation to insurance but that can provide a solution in appropriate cases.
Another aspect to bear in mind is whether the chattel should be given free of or subject to tax. If it is free of tax, the remainder of the estate will pay the tax and if it is given subject to tax, the recipient will have to pay. It makes good sense to consider whether the beneficiary can afford to, or will want to, pay the tax (most likely from his or her share of the rest of the estate) or on the other hand whether it is reasonable for the residue to bear the burden particularly as that will further benefit the already advantaged beneficiary to the further detriment of the others.
With particularly valuable or important items there are tax exemptions that may be of help.
If the chattel is pre-eminent it may be possible to make a claim for conditional exemption. This effectively defers any tax (potentially indefinitely) provided the chattel is available for the public to enjoy. The chattel can be kept at home and the public given access by appointment or it can be displayed in a place open to the public – typically a museum. If the chattel is later sold then the tax becomes payable.
If the chattel is of particularly high quality or importance it may be possible to offer it to the nation in lieu of tax. If the offer is accepted ownership passes to the nation and the value is offset against the tax on the rest of your estate. The item will be put on public display, and while it is possible to keep it at home (an in situ offer) this is only likely to be possible if your home as a whole is open to the public. It is more common for items offered in lieu to be displayed in museums or public galleries.
If the item fails to pass muster for conditional exemption or offer in lieu status then it can simply be given to a charity or museum of your choice. The gift being to a charity will be exempt from inheritance tax. This won’t deliver any value to your estate, but it avoids tax and issues of imbalance between children. And it may also prove to be a source of pride for future generations.
The issue of chattels can be divisive, but there are several simple methods of limiting quarrels between family members. There are also options open to those with valuable chattels that may help to save inheritance tax.
However as with all potentially contentious matters the simplest and most effective way of avoiding disputes is to openly discuss the matter with those who stand to inherit. This will help you know what your children actually want, and everyone will be clear about the basis on which they are to get what.
Putting your affairs in order shouldn’t be limited to finances and property. You need to think of chattels too.