Over the last two weeks we looked at two systems for distributing property. Giving distribution authority to your Executor has potential to be quick and efficient but may leave beneficiaries disappointed at not being part of the process. An auction system allows each to participate but can be very time consuming. A third option is a draft.
If you’ve ever played fantasy football, you’re familiar with a draft. All items are listed and each beneficiary selects one in turn. Some items should be grouped: silverware and matching dining room chairs should count as one item, for example. And best to use a “snake draft” system to increase fairness. Instead of beneficiary 1 selecting, then 2, then 3, then 1, 2, 3 again, alternate the order so in alternating rounds beneficiary 3 goes first: 1, 2, 3, 3, 2, 1. Repeat.
One drawback here is that if there are a small number of highly coveted items, the first person to draft is going to be at an advantage. If mom’s estate consists of her car, her wedding ring and some clothes, even by the end of the first round sibling #3 isn’t going to have much of a selection. One solution is to combine the draft with a “purchase” of items from the estate. If mom’s car is appraised at $21,000 and her wedding ring is appraised at $6,000, sibling #1 can chose to buy the car and put $21,000 of his own money into the estate. Sibling #2 might choose the wedding ring and pay $6,000 of her own money for it. By the time we get to sibling #3, there still might not be as much left, but at least he will be compensated for his siblings selecting the higher value items. At the end of the draft, all proceeds are split evenly and each sibling pays or receives accordingly. In this example, the estate acquires $27,000 for property sold so each sibling receives $9,000. Sibling #1 pays $12,000 into the estate for his car ($21,000 – $9,000); sibling #2 receives $3,000 and her ring ($9,000 share – $6,000 for the ring) and sibling #3 receives no property but $9,000.
For larger estates, a draft can be a beneficial system. There’s a greater element of fairness among siblings than if an Executor decides because each sibling is part of the process. And it prevents the distribution process from dragging out the way an auction might. Siblings can also combine a purchase or even auction process to distribute a few highly desired items, then implement a draft system for the rest. In addition to the main systems described, there are variations available for each one.
Not surprisingly, each method of distributing personal property has its benefits, along with potential drawbacks. Factors to consider include not only the size and composition of your estate, but the number of beneficiaries and their personalities and financial situations. For professional advice in determining the best solution for your individual needs, call or email Asurest today to set up an appointment.
This material is intended for general information purposes only and does not constitute legal advice. Responses to inquiries, whether by email, telephone, or other means, do not constitute legal advice, nor do they create or imply the existence of an attorney-client relationship.
Disclaimer: This material is intended for general information purposes only and does not constitute legal advice. Responses to inquiries, whether by email, telephone, or other means, do not constitute legal advice, nor do they create or imply the existence of an attorney-client relationship.