How do you divide up the world? For me, it depends on the context. With respect to wealth in its various financial or economic forms, I, as a lawyer, divide the world initially into two kinds of assets: “real property” and “personal property.” If someone says to me, “I have a property,” it only raises a question. “Well, what kind of property?” If I step outside my lawyer identity, however, and into that of someone who lives in Miami-Dade, I don’t have to ask that question. I already know. When a Miami-Dade person says “I have a property,” she means that she owns a real estate asset that is probably producing income for her.
But as an estate planning lawyer, I need to know right away what kind of property. Are we dealing with “real property” or “personal property?”
Lawyers will make a further division in their asset world. They will divide “personal property” into two more kinds, “tangible personal property” and “intangible personal property.” If I say “personal property” to someone on Flagler Street in Downtown Miami, they will think I mean their clothes, their watch, and their “personal” things. But from a lawyer’s perspective, they are referring to “tangible personal property,” property that has some intrinsic worth, property that one can pick up and carry around, property that one can move from Florida, say, to Texas. Jewelry, motor vehicles, stamp collections, “things,” if you will, including the stuff that clutters the inside of your house, things that you can feel – these are items of “tangible personal property.”
“Intangible personal property,” on the other hand, is property that you cannot see or feel but can still be very, very valuable. Ownership of 100 shares of stock in, say, Apple, is ownership of intangible personal property. If you can actually feel anything about such property, you are feeling something that which merely represents that asset, the stock certificate registered in your name or the brokerage account statement that lists those 100 shares of stock. In and of itself, the piece of paper is worthless. (Thus, you can lose the stock certificate but still own the shares it represents.) Life insurance on your life is another kind of “intangible personal property.” What you own is not the policy itself: those pieces of paper all nicely bound together that the agent gives you that say “Life Insurance Policy.” What you own is an enforceable promise by the insurance company to pay the beneficiary the face value of the policy, less policy loans, if any, when you die. The policy gives evidence of that promise. It is not the promise. The value of the policy lives, we might say, not in a material reality but in a sort of moral reality, a real place but an “intangible” place.
What kind of property one owns, real property, tangible personal property, and intangible personal property, is extremely important when one is involved in estate planning. Let me illustrate one situation in which the kind of property makes a big difference.
The clients, a professional couple married to each other and who live and work in Miami-Dade County, have a house here, furniture in the house, bank accounts, automobiles, and other sorts of items of value that one might expect to find on the balance sheet of such people. They also own a summer home in New York, near Rochester on Lake Erie. For convenience (and out of long habit), they also have an account at a bank in Rochester. They have a safe deposit box in that bank, with jewelry and some stock certificates in it, and they keep an old car in a shed attached to their summer home. The summer home belonged to the parents of the wife, and it is actually titled now in her name alone. They each have a Last Will that, at the death of the first of them, gives everything to the survivor.
What happens if the wife dies first? What must we do to get the assets over to the husband? For one thing, we must have two probate proceedings to accomplish that goal, one in Florida for the Florida assets and one in New York for the New York assets. The Florida probate proceedings we call the domiciliary proceedings, the New York proceedings, the ancillary proceedings. For our couple, we will need Florida lawyers for the Florida proceedings and New York lawyers for the New York proceedings. But which assets belong in those two proceedings?
Real estate assets belong to the state where they are located, regardless of where the owner has her permanent home. The Florida proceedings will therefore handle the Florida residence, and the New York proceedings will handle the summer home near Rochester.
Tangible personal property belongs to the state in which that kind of property is located at the owner’s death. We have automobiles and furniture in each state in our case. We also have jewelry in a safe deposit box in New York. We also have the New York safe deposit box itself, that is, we have the lease with the bank of that box. The box is tangible personal property and the lease of it would seem to be intangible, but the states in which such boxes are located are very possessive, so that box, as well as the jewelry in it, will be subject to New York probate proceedings. The stock certificates, if they are registered in the name of the deceased wife, will be intangible personal property and, therefore, subject to the Florida proceedings even though they are kept in the New York bank’s safe deposit box. (But if the certificates are “bearer” shares, then we will have a different result.) The Rochester bank account is subject to Florida probate proceedings. This is getting messy, and my mind keeps going back to two sets of lawyers, one set from Florida and one set from New York, which sounds like a lot of money.
Good estate planning can avoid the mess. One of the crucial steps in doing that planning, then, is immediately identifying the kinds of assets our clients own. We ask, “What kind of property do you own, exactly?” Is it a real estate asset or an interest in real estate? Is it tangible personal property? Is it intangible personal property? Depending on the answers to these questions, we might discover that our clients are not only facing the prospect of probate proceedings here in Florida, but also in one or more other states (or even other countries). We might discover that our clients (more precisely their families) are facing a mess.
Once we identify a non-Florida asset whose kind or location will prevent a Florida court from dealing with it, we may then be able to change it in some way to avoid ancillary proceedings in that other state. For example, we might suggest that the client close the safe deposit box in New York and move its contents down to a Florida safe deposit box. We might suggest that the wife in our case create a limited liability company and move her summer home into it, thus transforming the kind of asset she owns from a real estate asset to an intangible personal property asset. This change will make it a Florida asset for probate purposes. And if we must leave the New York car in that state, then let us put it in joint name with husband and wife so that at the first death at least we avoid New York probate. Let us also see whether there is an expedited way of dealing with a New York motor vehicle owned by the wife in the event of her death that is similar to the expedited process we have in Florida.
To develop a sound estate plan, then, we must not only (1) describe each asset early in the process so that everyone important knows what we are talking about, (2) understand how it is owned, and (3) have an idea of its value, but also (4) know the kind of asset it is.
A lot can hang on the kind.