When it comes to tidying up your house, bestselling author Marie Kondo from Japan famously advises readers to keep only those items that spark joy. This philosophy may be useful to the many baby boomers now in the process of downsizing their homes. But for many, this process is often simpler said than done. One of the more difficult challenges may be deciding how to divide personal items among children, grandchildren, other family members, friends and charities.
When it comes to the distribution of tangible personal property, how do you spark joy in the lives of your beneficiaries instead of creating the potential for conflict that can later tear apart siblings or other family members?
Today’s baby boomers are downsizing their homes for a variety of reasons: maybe their children are out of the house, maybe they want to live in a new geographic location, or maybe they experienced a divorce or death. Whatever the reason, downsizing often means finding new homes for a wide range of tangible personal items. The process of downsizing may also cause these baby boomers to suddenly think more carefully about how they will distribute the rest of their personal property at death.
The need to downsize may also provide a good opportunity for people to update their broader estate plans and decisions about dividing assets. Dividing items of financial value (stocks and bonds, cash, proceeds from the sale of real estate) may pose fewer issues, because there is a clear way to equally divide these assets if the donor so wishes. But when it comes to items that have more sentimental value than financial value, how these items are distributed can create distress for the donor and future strife among loved ones.
A good starting point is to acknowledge that “fair” does not always mean “equal.” In addition, recognize we are dealing with two different time frames. Downsizing happens during your lifetime, as opposed to property being distributed through a will upon one’s death. The benefit of downsizing is that, in many cases, everyone is living, so important conversations can take place with all of the necessary parties present. This is in contrast to the process upon death, when the person making the ultimate decision is no longer available. With that in mind, a recommended starting point is to have a plan and to give family members a chance to have these important conversations.
The first strategy is simply to ask. While downsizing, parents can ask their children if they want particular items. For example, when a client was downsizing, they asked both their son and daughter if either one wanted a piece of valuable furniture. The son was interested in the furniture, but he was living with his wife and baby in a small apartment. He did not have the room, and he did not want to pay for storage. His sister was not able to take the piece for similar reasons. The parents then sold the item at auction. Everyone had an equal opportunity, and everyone was satisfied with the outcome.
The second strategy is to create a list of who should get what property, either during one’s life or upon death. For many items, this is as much about sentimental value as it is about financial value. But this strategy is most effective if you first set expectations among beneficiaries. Photo albums, handwritten notes and childhood pictures all may have sentimental value. Take the time to understand which child may want one item over another and note that on a list. Any list should be updated if an item was given away or new ones are acquired.
Also, for some of those items, a picture may be worth a thousand words. Take a picture of a handwritten note and get duplicates of a photo album. With today’s technology, it may be possible for everyone to get that handwritten note, even if only a replica. One family spent part of Thanksgiving going through the house and putting sticky notes on items each child eventually wanted. Although arguably a bit morbid, the children were able to discuss why they wanted a particular piece and, as necessary, “trade” one item for another. Even the grandchildren were able to express their opinions.
The third strategy is to have a family auction. Children start with a set sum of “estate dollars” that they can use to bid for certain items. This shifts the determination of value upon the children, who will get to bid more on those items they really want and pass on those items they deem less valuable. Be sure to provide a mechanism to equalize as needed and to distribute any items not distributed through the auction process. Also, it is important to ensure the individual running the auction has some understanding of the family. The goal is to make this a fair and conflict-free process.
When deciding how to distribute personal property, it is a good practice to ensure each beneficiary gets approximately the same financial or sentimental value. In some cases, it may even be worth considering donating a valuable collection to charity. Be thoughtful about what strategy will work best for your family. The goal is to make sure that the family members will ultimately be satisfied—giving the donor as much joy as the beneficiaries.
Josh Miller is a managing director and senior wealth strategist for CIBC Private Wealth Management in Boston.
