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Christopher Stoneman Estate Planning Articles
III - Property
In the hip-pocket definition of estate planning as “Who gets what and how,” property is the“what,” readily divisible into two basic categories: real property (land and its “fixtures”*) and personal property (everything else that can be owned and transferred). Personal property (or movable property, as it is sometimes called) may be either tangible – the moth-eaten raccoon coat hanging in the guestroom closet, the lawn-mower in the tool shed, the family bible – or intangible – bank accounts, shares of stock, goodwill, accounts receivable and the like, whose only physical substance, if indeed any, is the paper by which they are evidenced.
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* Items which are so attached to the land on which they stand are to be regarded as part of the real property in question. Even the humble toilet seat, when firmly affixed, enjoys this exalted status.
While the basic distinction between real and personal property is not hard to grasp, other property-related terminology may be a little less accessible. Take, for example, the concept of estates and interests in property and the proposition, well rooted in legal antiquity, that several people, even groups of people, may have identical or varied interests in the same piece of property, either at the same time or concurrently, depending upon their predecessor’s precise objectives. A piece of land – let’s call it “Blackacre” - may be owned by a single person as sole owner or it may belong to two or more individuals as co-owners; Blackacre may be owned by one person for life (the so-called life tenant), who is the holder of a present interest with certain limited rights, and by another (the remainderman) who owns the right (a future interest) to the property when the life tenant dies. Instead, Blackacre may be held by a trustee, the owner of record, who has no personal right of enjoyment of the place but holds it for the benefit of the life tenant and remainderman whose interests are then said to be equitable or beneficial, rather than legal.
The remainderman’s future interest will become absolute when the life tenant dies. If, as is ordinarily the case, the remainderman must survive the life tenant in order to get Blackacre, the remainderman’s interest is said to be a contingent remainder. This of course raises the question (regrettably sometimes overlooked) of who will be entitled to have Blackacre if the remainderman dies first as remaindermen have been known to do.
Perhaps the following hypothetical illustration may be helpful.
The principal assets of Janet M______, a minor poetess, consist of a lakeside home in Vermont, a condominium in Anguilla, a boat, two cars, a horse, some rather nice jewelry, a bank account and a brokerage account. Janet is widowed and has three adult children and four grandchildren. Her home has been in the family for over 150 years and she wishes if possible to have it remain there after her death.
Her estate comprises all three kinds of property;
- Real property - the house (including its surrounding acreage, beach rights and outbuildings) and her condo;
- Tangible personal property – her boat, cars, horse and jewelry; and
- Intangible personal property - her bank and brokerage accounts.
After taking professional advice, Janet decides as follows:
She executes a will by which at her death – until then the will is of no legal effect - she creates a testamentary trust* to hold the house, together with sufficient cash to defray the costs of its upkeep, taxes, insurance, etc. In this trust she directs the trustee to hold the house for the enjoyment of her descendants (often called her issue) living at her death. When these have all died the house is to be given to Janet’s alma mater, preferably for use as a writers’ “retreat.” She leaves the condo to her two daughters jointly as tenants in common (i.e., without cross-rights of survivorship), making each the owner of an undivided one-half interest; gives her horse to a friend; gives one of her cars to her favorite grandson, the black sheep of the family whom she adores; and leaves the other car to her gardener whose roses have won several first prizes. Everything else is to be sold by the executor of Janet’s will (who may or may not be the same person as her trustee) and used to pay funeral expenses, debts and taxes, with the balance to be distributed to her grandchildren. A fairly conventional and, one hopes, workable estate plan. With these worldly distractions eliminated, Janet’s well-tempered muse may now aspire to even greater poetic heights.
Q.E.D.
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*In Vermont this trust will be subject to the ongoing supervision of the local probate court. As will be discussed in a later article, this supervision can be dispensed with by the use of a so-called living trust set up during Janet’s lifetime.
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