Introduction: How to Divide the Estate Fairly and Happily

About: Long time bicyclist, bike commuter, bike tourer, recent bike builder/experimenter. I'm an energy consultant for hydro electric, solar and other renewable energy generation.

Shown here is a way to allocate items in an estate so everyone is happy. Even the deceased.

Normal situation
All too often the division or allocation of specific items from an estate is a source of division or stress among the heirs. We've all heard horrible stories about an heir absconding with the bulk of the "treasure", or about two heirs wanting the same object or about games the elderly play when they tour each heir separately through the treasure room asking "What would you like after I'm gone?" and then separately committing the same item to different heirs. We've all heard stories of siblings breaking off communication over disagreements and misunderstandings related to dividing an estate.

Fair Situation
The division can be easily achieved with each item going fairly to the heir that most values it. The other heirs can be cheerful to see each item go to its most desiring new owner.

Step 1: The Defective Normal Method of Allocating Items

Problem 1) Even though Betty and Wilma are equal share heirs, there are problems.
Their recently deceased father had "accidentally" promised the gold tea pot to both daughters.

Problem 2) He did not promise the Picasso to either and it got ripped in the struggle.

Problem 3) He may have accidentally promised more items to one daughter even though the will says they each get 50% of the residual estate.

Problem 4) One daughter expressed interest in an item and it was promised to her, The other daughter was even more attracted to it but was too polite to mention it.

Problem 5) two heirs want the same sentimental item but can't figure out which of them wants it more. (one says: "I really, really want it." the other says: "No, I really, really, really want it.")

Step 2: Find and Read the Will

The will identifies what assets and items are in the estate.
The will may also allocate certain items to certain heirs already. Have the executor honor those bequests.
The will also probably has a section allocating the balance (residual) of the estate to a set of several heirs in some defined fractions.

This instructable is about dividing the items in that residual estate fairly so that each of the heirs gets the right items and the right fraction of estate value and nobody feels left out or feels cheated. Relationships can be preserved and enhanced.

Step 3: The Theory

The balance of the estate items [typically including: jewelry, furniture, tools, art, electronics, books, memorabilia, household goods, clothing, cars even bikes] can be fairly divided among the heirs using a walk through auction method where each heir interested in an item expresses their level of interest in each item by bidding "Estate Bucks" on the items.

That's right. A walking tour through the homestead where the executor (or a fair heir) picks up each unassigned item in front of all heirs and lets any of them bid on getting it. The highest bidder is the one that wanted it the most.

The "unsuccessful" bidders are happy too.
They (and the "winner") all will split the estate bucks (as per the fraction shares outlined in the will) committed by the winner when the final estate liquidation and settle up occurs in a few months.

You are not having to buy your inherited items from the deceased, you are buying them from the group of heirs that includes you and you all get a distribution of the "proceeds".

Step 4: The Practice

Gather all heirs.
Start in one room with a pencil and tally sheet.
1) Pick up an item to be distributed.
2) Ask: "Anyone interested in bidding?"
3) A couple of heirs start bidding and out biding one another until the highest price bid is the remaining bid. (normal auction)
4) Hand the item to the winner and write their name, the item and the price bid on the tally sheet.
5) Pick up the next item to be distribute and repeat steps 2-4 for it.

The process goes pretty quickly.

Photo shows the start of the tally sheet after Betty out bid Wilma and agreed to "pay" the estate $150 for the pot. Betty goes home with the pot today. Heirs do not need to pay today.

There is a 4 tab Spreadsheet linked below.
It has an Example Tally Sheet and a blank Tally Sheet for you to customize.
It has an Example Settlement Sheet and a blank Settlement Sheet for you to customize.

Step 5: Why It Works

Everyone attending the auction (or phoning or mailing their bids in) has an equal chance to acquire any and all items.
Any heir has a chance to amicably outbid another and the other should be happy to have been outbid for two reasons:
a) The item is going to someone who wants it more than anyone else.
b) The other heirs have not lost the item to the winner. They've "sold" it to the winner and they will receive shares of the bid money, in the final estate distribution settle-up in a few months.

The winner can walk away, that same day, with the item without any "out of pocket" expense. They have agreed to have their share of the final estate liquidation settle-up amount reduced by the number of estate bucks they bid. The winner's settle-up check will be a little smaller because of the dollars they bid. The other heirs' checks will be a little larger as the winner's bid money is reallocated to everyone including them per the will's normal residual estate division fractions. No special provisions are needed in the will.

Step 6: What About Stuff Nobody Wants?

Unwanted stuff is quickly identified and can be set aside to be:

a) sold at a garage sale (with proceeds remaining in the residual estate for residual distribution.
b) donated to charity
c) Craigslisted Craigslisted
or Freecycled[

d) left at the curb with a "free" sign ("gratis" if you prefer the original Latin)

Step 7: The Final Settleup

The executor settling the estate a few weeks or months later can sum up what each heir's tally sheet says the heirs owe the estate.

An example with two heirs is shown below:

The total "estate bucks" that each heir owes the estate are added to the liquidated value of the estate that is to be distributed to the heirs, thereby increasing the gross value to be distributed to all heirs.
However, in calculating how big a distribution check each heir gets, that heir's tally sheet winning bids are subtracted from the heir's distribution check amount.

There is a 4 tab Spreadsheet linked below.
It has an Example Tally Sheet and a blank Tally Sheet for you to customize.
It has an Example Settlement Sheet and a blank Settlement Sheet for you to customize.

Step 8: Example Settle-up

Betty and Wilma are heirs to two equal shares of an estate (50% / 50% split).

In the distribution auction Betty won a number of items tallying $1,400. Wilma chose to win items tallying $600.
Both went home with the items they won on the auction walk through day.

Months later, the estate which includes other liquidated assets of $60,000 is settled as follows:
Total Estate of $60,000 cash from liquidated assets plus $600 tally + $1,400 tally = $62,000.

Betty's share of gross estate is 50% of $62,000 = $31,000
Wilma's share of gross estate is 50% of $62,000 = $31,000

Betty's Settleup check is : $31,000 minus $1,400 tally owed = $29,600
Wilma's Settleup check is : $31,000 minus $600 tally owed = $30,400

Betty is happily holding: $29,600 check plus items she valued at $1,400 (total = $31,000)
Wilma is happily holding: $30,400 check plus items she valued at $600 (total = $31,000)
The process is fair and painless and each heir has the items they valued most. Both are happy with each other and happy with themselves. The deceased would be proud of them for amicably settling the estate and maintaining good relationships. They probably improved their relationship since they were each able to get items they valued without hurt feelings.

Step 9: Fair Bidding Strategy

How high should I bid?
Since I get half the money back as an equal split (50/50) heir what is the right price to bid for items?

Just bid the item's real value to you.

Example: you are a 50/50 heir and the item is a $100 bill with no sentimental value but definitely worth exactly $100.

Bid 100 estate bucks for the currency. Win the currency. Put it in your pocket. The Executor notes that you owe the estate $100 "estate bucks" for the currency. a few months later on settle-up day, the 100 estate bucks are summed into the estate and split in half.
e.g. the rest of the estate was $30,300. Add your tally sheet owing 100 estate bucks and the total is $30,400. It is split 50/50 so your share is $15,200 minus the $100 you owe = 15,100. The other heir gets their half ($15,200).

Notice you are not buying items from the deceased. As an heir, you are already entitled to your share of each item. You are buying the other shares of the item from the estate. The estate gives up the item to you and it grows by the number of "estate bucks" you tallied.

Step 10: What About Sentimental Value?

Yes the bidding system works for items that have sentimental value.

Imagine 3 siblings bidding on a childhood book they all grew up with. It could have zero monetary value and oodles of sentimental value. The heir for whom it is most important (compared to money) will outbid the others and "buy" the book from the estate. The other two siblings are happy the book went to the one who appreciated it most and they are happy to get bigger settlement checks later. They are happier with the larger settlement checks than they would be with the book.

Ethical puzzle:
Suppose the will bequeaths a doll collection to a museum, but the collection is also desired by the heirs. How about testing it in the auction process first and finding that an heir is ready to pay $1,200 for it. Take the collection to the museum, tell them about the bequest and offer them the choice of the collection or $1,200. I bet they will take one or the other. Either choice seems good to me because the collection goes where it really is most valued.

Step 11: Bonus Points

1) Should non-heirs be allowed to attend and bid in the auction?
(aka "Oh give me a home, where the dear and the interlopers play..")

Yes, they should be allowed. If a non-heir wants something enough to outbid the heirs, the heirs should be happy about getting more money than the item was worth to any of them. The non-heir should pay the executor that day and receive the item as soon as the executor trusts the check will clear. No need for non-heirs to wait for either paying or getting items until settle-up day.

2) Can heirs bid on items they don't really want...just to benefit from making other heirs bid higher and closer to their real value?

Sure, that is a fun game with interesting risks.
But, it could upset an heir who was hoping to win items for much less than they really valued them.

3) In the extreme case you could move all items onto Ebay and have the heirs plus the rest of the world bid on items. (That seems a little crass even to me. But it gives me an idea for an amusing provision to put in a will. It would make your estate administration into a piece of performance art.)

4) We employed a "return to giver" rule where items given by an heir to the deceased were returned to the giver.

Step 12: Pep Talk to the Heirs

Talking points for the kickoff of estate administration. This is best done early, (like the day after the memorial service) before any actions are taken by heirs.

As executor It's good to give a pep talk to the heirs to lay out some interests and goals of successful estate administration.

1) What Mom wanted most was that we all remain close as a functional family.
2) So administering the estate in a fair and constructive fashion is important and in keeping with her wishes. It preserves and enhances relationships in a time of stress.
3) Done right, we can use tackling this problem, as a bonding experience.
4) Done wrong, it will leave lingering animosity.
5) The will and estate documents allocate the estate in the following shares: x% to Betty and x% to Wilma....
6) Is everyone OK with that? (listen for the answers)
7) Mom worked hard to earn her money and we should respect that by administering the estate in a productive, low cost, efficient, low waste and timely manner that preserves the most for us heirs.
8) No one has a monopoly on good ideas. We should all be open to each others' suggestions as we proceed.

Step 13: Disclaimer

1) I am not now, nor have I ever wanted to be, an attorney.

2) This instructable contains no legal advice. Anything inferred as legal advice has been misunderstood.

3) This instructable is provided to be of assistance in a delicate area of communication.

4) Any use of this instructable (proper or improper or misunderstood use) is the sole responsibility of the users.

5) By this disclaimer we proclaim that this good deed of sharing shall not be punishable.
(perhaps one good deed could go unpunished)

Step 14: How to Leave Instructions

It makes sense to leave instructions for your heirs to follow.
Key points in the instructions letter.
Tell them:
1) You love them and want them to rise to the challenge of administering the estate in a way that improves their relationships with one another.
2) Executor has the authority and responsibility to carry out the wishes and perform the administration.
3) You want them to work together and support the executor in the smooth, efficient, fair administration of the estate in accordance with the will.

It's not uncommon for one heir to have provided the bulk of the personal assistance to the deceased in the final year(s). Consider addressing that issue as a special debt of the estate owed to the heir providing that care ("Care-heir"). Suggest a payment amount or payment calculation formula to be made by the estate in final settleup to the Care-heir.
i.e. "In reimbursement and compensation for valuable support services provided by _______, I instruct the estate to make a special distribution calculated as $400/ month multiplied by all months starting October, 2007 through the month of my death."

"The balance of the estate is to be distributed in equal shares to my heirs including my Care-heir."
This way nobody is left out even though one or more heirs were in positions or had capabilities to provide more support services.