When someone writes a last will and testament, they usually bequeath real estate in the will itself, and address their personal assets in a Personal Property Memorandum that is attached to and referenced in the will (see an example from the American Bar Association here).

Generally speaking, personal property refers to any tangible and intangible assets not including houses and property. Because the definition is so vague, it’s important to include descriptive terms when addressing personal property, such as “personal property in the house,” or “tangible personal property.”

Tangible Personal Property

Tangible personal property refers to possessions that can be physically touched—vehicles, art, jewelry, collectibles, guns, electronics, furniture, etc. It also includes less-valuable property like clothing, books, and household items. There are a number of ways to address tangible personal property in a Personal Property Memorandum. Here are a few of the most common:

  • The testator (the will’s creator) bequeaths all personal property to a single beneficiary (e.g. everything in the house goes to Christopher Martin)
  • The testator bequeaths groups of personal property (e.g. all of the jewelry goes to Claudia Garcia, all of the furniture goes to Eduardo Garcia, etc.)
  • The testator bequeaths specific items to beneficiaries (e.g. the Mona Lisa painting goes to Sara Smith, the wedding ring goes to Ashley Smith, etc.)
  • The testator requests all personal property be sold and the proceeds distributed to the beneficiaries

In all of the above scenarios, it’s common for the will or the Personal Property Memorandum to include a “catch-all” or “pour-over” line that addresses any personal property that was mistakenly not addressed. For example, the will could state that any remaining tangible assets should go to the owner’s spouse.

Intangible Personal Property

In contrast, intangible property includes any assets of value that cannot be physically touched. Intangible property usually includes bank and brokerage accounts, stocks, bonds, mutual funds, and insurance policies.

Personal Property that’s Exempt from Probate

Probate is the legal process of executing a decedent’s will and distributing their assets through the county court. In the state of Arizona, probate law is based on the Uniform Probate Code (UPC), and probate proceedings are regulated by Arizona Revised Statutes Title 14 (ARS 14).

While probate is necessary to appoint a personal representative for the estate, settle the decedent’s liabilities, transfer titled assets, and execute the decedent’s will, not all personal property is subject to probate. Intangible personal property that has a designated beneficiary listed on the account can automatically transfer to the listed beneficiary upon the owner’s death. The following intangible assets offer the ability to include a designated beneficiary and bypass probate:

  • Bank and brokerage accounts with a payable-on-death or transfer-on-death beneficiary
  • Retirement accounts (IRA, 401k, etc.)
  • Life insurance policies
  • Trusts

To process a non-probate transfer, all you need to do is submit a copy of the owner’s death certificate to the financial institution holding the intangible assets. Once the financial institution has received the death certificate, they can usually process the transfer to the designated beneficiary within 1 – 2 weeks.

Keep in mind that you cannot bequeath non-probate assets in a will. If an asset has a designated beneficiary listed on the account, the designated beneficiary always trumps any beneficiary named in the will. For example, if someone lists their spouse as the designated beneficiary for their IRA and later writes a will that bequeaths his IRA to his sibling, the IRA would still go to the spouse.

It’s also important to note that designated beneficiaries don’t inherit the decedent’s debts. Even if the decedent’s estate is insolvent (meaning there are more liabilities than assets), creditors have no claim on assets that are transferred directly to a designated beneficiary outside of probate.

Personal Property that’s Subject to Probate

Personal property that doesn’t have a designated beneficiary—or that lists the decedent or the decedent’s estate as the designated beneficiary—will need to transfer through probate. As long as the decedent has a will, these assets will be distributed to the beneficiaries named in the will according to the testator’s instructions. If the decedent doesn’t have a will, these assets will be distributed to their legal heirs according to the state’s intestacy laws.

There is one notable exception to this rule—personal property that’s transferred to a trust is not subject to probate. That means personal possessions that normally require probate such as art, jewelry, and collectibles, can transfer to the trust’s designated beneficiary without the direction of a will, and without going through probate court.

How to Properly Address Your Assets in Your Estate Plan

If you’re drafting a will as part of your estate plan, here’s an easy five-step process to make sure all of your assets are properly addressed:

  1. Take an inventory of your intangible assets – this is fairly simple to do by gathering your most recent account statements.
  2. Take an inventory of your tangible assets – start with major assets like houses, condos, real property, vehicles, and boats. Next, walk through your house with a note pad and jot down your personal possessions that are worth more than $100, as well as any sentimentally-valuable items that are important to you. This should give you a good indication of the personal property that you need to address in your will.
  3. Update the designated beneficiaries for your intangible assets – submit the proper paperwork with your financial institutions to list the appropriate designated beneficiaries on your intangible assets. In addition to listing primary beneficiaries, it’s also a good idea to include contingent beneficiaries who should receive the assets if your primary beneficiary passes away before you.
  4. Bequeath valuable tangible assets to beneficiaries in your will – your will should address all the intrinsically-valuable and sentimentally-valuable property that you listed in step two. You should specifically bequeath especially valuable property, but it’s okay to generally address smaller items (e.g. Barbara Bell gets the 1966 Ford Mustang, and Sandy Bell gets all of the tangible personal property inside the house).
  5. Include a catch-all phrase to ensure none of your assets are left out – probate law is stringent, so it’s helpful to include a catch-all phrase to ensure all of your personal property is covered (e.g. any remaining tangible and intangible property goes to Michael Wood).

For long-term peace of mind, contact us to set up a consultation today. We look forward to helping with your will and other estate planning needs.

 

Call Arizona Estate Attorney Dave Weed at (480)467-4325 to discuss your case today.

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