How to Divide the Estate Fairly and Happily

Intro: How to Divide the Estate Fairly and Happily

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.

Comments

[cmaynard4jesu]

Is there a way to make the bidding anonymous?

[Woodenbikes]

Yes, I can think of three ways:
1) have a 3rd party person collect the bids and keep them anonymous
2) Have a "zoom meeting" or a "goole doc" where everyone joins in with fictitious names and bids in the "chat" or in the doc. The google doc method allows people to visit. on different days. I'm not sure how to keep the bid size secret there.
3) A Survey monkey poll might be the way to stay anonymous and keep the bid size secret too until bidding is closed and the winning bid size needs to be displayed.

[Ejames2126]

Let’s say a father has an estate is worth 5 million dollars and with some held in a family limited partnership and the remainder in cash and brokerage accounts. The estate is to be divided equally between three siblings upon his death. One of the siblings has 3 children, one has 2 children and one has one child. While the father is still alive he gifts each grandchild $100k dollars from that estate. How should that gifted money be accounted for when the father passes and the estate is divided?

[OneOfTwo]

I live in Indiana and I have several guns from my deceased brother's small estate. He died without a will. As executor/heir how should I divided the guns up between me and the other heir? Does the executor have the right to divide these guns instead of the other heir? I had these guns evaluated so they can be divided by the value. Is this the way to go?

[Elizmccue]

when two heirs own same dwelling and one wants to sell and the other does not. What should happen

[geoffreysf]

California has that problem figured out pretty good. For home owners, for commercial property owners, and for renters. In fact, every state in this country plus Canada should mirror California property tax relief... Plus cover situations like you mention, where one beneficiary wants to keep an inherited house, for example, and 2 or 3 beneficiaries insist on selling the same inherited property... In California you have CA 1978 Proposition 13 maintaining a low max tax base of 2% property tax reassessment, avoiding property tax reassessment that uses present day evaluation... instead, when you inherit real property from parents you get to transfer
parents property taxes to the new inheritance scenario, so you can keep parents property taxes at low rates that they paid. For property tax transfer, in terms of keeping an inherited house anywhere in California in all 58 counties, say, you have the parent to child transfer, commonly known as parent to child exclusion from current tax rates... CA Proposition 58 addresses the issue you brought up, only it involves working with a trust loan from a trust lender... paying off beneficiaries that want to sell the property in question; while the beneficiaries that want to keep the house may do so while buying out the co-beneficiaries with cash from a trust loan. So you end up inheriting property taxes that are much lower... paying a low tax rate every year. Plus paying off the heirs who wanted to sell... So it's win-win for all parties. In answer to your question -- that's the way to do it! And you can research this at sites like https://www.boe.ca.gov/proptaxes/proptax.htm the BOE site that covers Prop 58... Or, sites like https://propertytaxtransfertrusts.com or business Websites that focus on Proposition 58 and trust loans from trust lenders, like https://cloanc.com/category/prop-58 -- also covering issues like “equalization of liquidation” for beneficiaries who wish to sell for example, while allowing those who want to keep inherited property to keep it -- and at a super low property tax rate.

[Woodenbikes]

Assume in that case the 2 heirs are equal partners in the property. The one who wants to keep it can either buy out the one who wants to be bought out, or find another partner to buy the departing partner out and share the property with that new partner.

[JoanneH77]

Thank you for such a well thought out article!
The question I have is...what happens when there is a valuable item (i.e., a piano), that Heir A has room for, but Heir B does not. Conceptually, Heir B would not bid on this item. Does heir A just get the piano for free or a very low price? Is there a way (besides bidding) to ensure fair compensation to the heir that does not have room for this item? How would you deal with this situation? Thank you!!!

[Woodenbikes]

Heir B or the executor can put the piano up for sale to the market (e.g. estate sale or on Ebay etc.) Heir A is allowed to bid on it with everyone else. Let's say A valued it at $2,000 and an Ebay buyer out bid A and paid $3,000 for it. A and B split the $3000 instead of splitting a Piano B couldn't accommodate and that A valued less than the amount of money a stranger gave them. A and B treated each other fairly and they each have $1500.

[dierdresteele]

Before my dad passed, he and his attorney drew up a really complicated will, with special provisions for my one brother's numerous children. The issues we are facing are with the now-grown grandchildren, including my other siblings' and mine, is that many of the adult grandchildren who are named in the will are already asking for various objects, large and small, some quite valuable, though our mom is still alive and could live years more. Your plan seems to address the major hurdles we will be facing, but our families are stretched all over the country, so getting everyone together at the same time would be impossible. Do you have any suggestions for this issue?

[AngeK4]

What do you all think about the idea that the trustees draw up a list of all assets under say $10,000 and the heirs roll a dice and start picking according to either value or sentiment I.e a particular thing is important to one regardless of fact its worth nothing whereas another heir wants items of value. Continue around until all is divided. Those that have things they don’t want st the end can sell them. Items above 10,000 are listed and the heirs can just bid on those. Saves the whole ridiculous bidding game.thoughts??

[Woodenbikes]

I look at it from the heirs' perspectives, and want them to all have continuous equal chances ( not dice luck determined chances ) to acquire either all of the items they value more than anyone else or their fair share of the dollar value that another heirs want to pay. Using the bidding method allows maximum happiness to all participants (getting either items or money but always what they want of the two). I see the bidding as a collective happiness maximizer, and fairness maximizer that makes everyone take responsibility for their own choices. One example of a problem with dice order selection method is imagine 4 heirs and only 3 items (gold coins each with a market value of $4000). In the dice method, one heir is disappointed and gets nothing. However, in the bidding method if one heir wins the bid on every coin at $4000 each, everyone should be happy. The winner has the 3 coins they wanted and the three "losers" each have an additional $3000 in the final estate settle up.

[SeanC221]

What is done with the money that was used for auction? Is it divided equally between the heirs? This would mean someone who bid on something would get a portion of their money back, correct?

[joanjr]

Our family of 4 siblings just did this and I definitely have comments. We did this while my father is still alive.

First, I highly advise that you have either the siblings or a spouse but not both. And have everyone agree on process.

Second, I suggest each sibling gets to select one object at the outset and then auction everything else.

Third, the idea of family members being nice during an auction might be something some families are capable of, not mine. My brothers bid up objects they didn't even want just for the fun of watching the rest of us lose more money. Be careful!

[Eliza BethK]

I'm searching for your app and I can't find it. Is it still available? What can I do?

[MsMonsterMasher.]

I like this idea after hearing it: A man had 3 adult children. He left instruction for one child (likely the most honest or fair one) to speak to each sibling to determine what items were most sentimental amongst his personal belongings. The residue of the estate was divided equally 3 ways; land, house, car, money, etc.

Then the one child had to divide all the personal items into 3 piles based on the information he received from his siblings and his own personal preference. Once that was done his sibling 1 and sibling 2 flipped a coin for first choice of either group 1, 2 or 3. Then sibling 2 chose a group. Finally, the child who had divided the entire lot was given the final remaining group of personal items.

I sure bet that child worked darn hard to consider everyone's wishes, split the groups evenly and fairly as best as he could because he was left with the last group available.

They were also allowed to trade or give items from their own piles to each other if it was mutually acceptable to both parties.

NICE IDEA! I really like it. I am considering using it in my own will for my 3 kids.

[Woodenbikes]

The method I shared is similar to the final corrective trading step in the method you mentioned. My method is simpler because it skips all the prior steps of attempting to create equal value (sentimental and monetary value) piles. In my method the heirs each get to individually express how much value they place on the items they want and to have the heir who truly wants it the most, get it and compensate the others for it. All should be happy or keep bidding higher until they are happy. Nothing is left to chance. Less prep work is needed.

[MsMonsterMasher.]

P.S. - If there were items nobody wanted, those were first sorted out and later sold and the money was split 3 ways.

[JeremyOlm]

When it comes to estates, it is never an easy task splitting the assets within to the related family members. Sometimes the entire process could just end up in bickering or even a permanent feud. Therefore, the families involved need to ensure they hire professionals to do the job for them such as an attorney who have more experience and knowledge in this field.

[JeremyOlm]

A will can definitely help to save a lot of trouble and prevent possible family feud. For the assets and belongings, it is quite easy to allocate accordingly as they are in per piece physical form. However, for the property itself it would require the assistance of an estate agent to help sell and have the profits shared equally amongst the family members. Only in that way will it be a fair and square deal.