Tuesday, February 5, 2013

Pitfalls of Personal Property Distribution

     Personal property, everything that a person owns that does not have an ownership designation or title, can become the most difficult part of distributing an estate. Even if there are no arguments as to who inherits the property, personal representatives and trustees, may face substantial issues in distributing personal property. 

     One category of items where questions typically arise involves the distribution of firearms. In the majority of circumstances, the fiduciary can transfer firearms to designated beneficiaries when those individuals acquire the proper transfer paperwork from their local law enforcement agency. Problems, however, arise if beneficiaries reside in other jurisdictions, or if the designated beneficiaries cannot legally own firearms. 
     In the case of an out-of-state beneficiary, it is important for fiduciaries understand that federal law prohibits the transportation of firearms across state lines for delivery to another person without a proper license. An exception allows a beneficiary to transport such firearms, but that exception does not extend to personal representatives or trustees. Therefore, a beneficiary who stands to inherit firearms must come to the state where the deceased individual resided to claim their inheritance. If this is not possible, fiduciaries are advised to arrange for the transportation of inherited firearms through a licensed gun dealer. 
     In addition to problems arising with the physical transfer of firearms, fiduciaries must also confirm that the individuals named to inherit firearms are eligible to own such weapons under state and federal law. Failure to do so may expose the fiduciary to felony charges for disposing of the gun to a prohibited person. Federal law provides reasons why an individual may be ineligible to own a firearm, including: 

  • Being convicted, in any court of, a crime punishable by imprisonment for a term exceeding one year; 
  • Being a fugitive from justice; 
  • Being an unlawful user of or addicted to any controlled substance; 
  • Having been adjudicated as a mental defective or having been committed to any mental institution; 
  • Being illegally or unlawfully in the United States 
  • Having been discharged from the Armed Forces under dishonorable conditions; 
  • Being subject to a court order that restrains such person from harassing, stalking, or threatening an intimate partner of such person; or 
  • Having been convicted in any court of a misdemeanor crime of domestic violence. 
States may have additional restrictions against gun ownership. In these circumstances, the fiduciary must dispose of the firearms in a manner that complies with the decedent’s instructions but does not expose the fiduciary to liability for violating state or federal law. In many circumstances, the controlling document provides that the fiduciary may sell items of personal property and deliver the proceeds to beneficiaries. If this is not an option, the fiduciary should appeal to the Probate Court to amend the provisions of the controlling document in order to avoid exposing the fiduciary to liability for an illegal gun distribution. 
     In addition to firearms, fiduciaries should be aware of other regulated items that may appear in the personal property of an estate. This may include items made from parts of endangered species. Significant restrictions apply to the sale and transfer of such items. 
     A recent example of one such item occurred when the beneficiaries of a New York art dealer, Ileana Sonnabend, inherited Robert Rauschenberg's mixed-media work, Canyon. The piece, which contains a stuffed bald eagle affixed to the canvas is valueless because it is a felony under the Federal Bald and Golden Eagle Protection Act to sell any item made with any part of a Bald or Golden Eagle. The IRS determined that, despite being unsellable, Canyon had a fair market value of $65 million and sent the Sonnabend Estate an invoice for $29.2 million in estate taxes. The case eventually settled when the Estate agreed to donate the piece to the New York Museum of Modern Art, for public exhibition, in exchange for the IRS rescinding the tax assessment. While very few instances of personal property will rise to this level, artwork made out of ivory, the feathers of endangered birds, and items of archaeological significance may appear in the estates of older individuals who obtained such items when the transfer of such items was not subject to regulation. If the fiduciary discoverers any items of this nature in the process of inventorying the assets of an estate, it is important to contact professionals who have an expertise in the transfer of such items in order to protect the fiduciary from exposure to any criminal liability for the transfer of such items. 
     The distribution of personal property is not always as complex as the scenarios discussed in this writing, but it is important to discuss with clients the scope of their personal property in order to establish a plan that reduces any potential liability for future fiduciaries. It is also important to work with fiduciaries to ensure they are aware of the laws that may expose them to personal liability as they execute those roles 
     If you have questions or concerns regarding specific items please do not hesitate to contact us and we will be happy to discuss those questions and assist in creating a plan that addresses those concerns

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