You don’t want your heirs to fight over your assets? Here’s what to do now

It’s the day-to-day items—the ones with sentimental value—that can cause the most problems.

  • By Glenn Ruffenach,
  • The Wall Street Journal
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I would like to see you write about the best way to divide up treasured items among family members when someone dies—including the items that probably no one will want.

When it comes to estate planning and deciding who gets what, most people concern themselves, understandably, with big-ticket items: investment accounts, real estate, business interests, etc. In doing so, it’s easy to overlook personal possessions, the seemingly mundane items that are part of daily life.

But it’s these day-to-day objects, according to educators and estate planners, that can cause some of the biggest arguments among survivors. That’s because, first, such items—a jacket, a photograph, a baseball glove—frequently hold greater sentimental value than we realize. Second, it can be tricky to determine what’s fair when dividing personal items.

Put another way: How do you assign a value to, say, a banged-up musical instrument that several family members might want?

The best way to make decisions about personal property is to talk with heirs while you’re still alive and in good health. Ask your adult children, for instance, what they might want and why. Also ask them what other family members should have and why. You might learn, for instance, that your adult daughter thinks her brother should inherit, say, a particular book that was part of their childhood.

The other big benefit in talking about personal property with would-be beneficiaries is that you get the chance to share stories and memories that are tied to these gifts. (Even better: write the stories down.)

Other questions to consider:

• Do you wish to include in-laws in the decision-making?

• What happens to personal items if a parent remarries?

• When is the right/best time to begin the actual transfer? The worst time: directly after a funeral, when family members, typically, are still in shock.

As for the legalities, if you wish, you can draft and sign what’s called a “personal property memorandum,” a list of items and the people selected to inherit them. You should mention the existence of the document in your will, but the memorandum itself can be changed as often as you wish without having to update your will.

For those who need help dividing up personal possessions, check out “Who Gets Grandma’s Yellow Pie Plate?” This 108-page workbook, published by University of Minnesota Extension (cost: $12.50), is a step-by-step guide to the process. Among the topics: setting goals for transferring property; defining what “fair” means for your family; and evaluating “distribution options and consequences.” In short, a terrific resource.

I have been saving for my retirement in a traditional IRA, using a mix of index funds for stocks and bonds. I am now getting ready to tap my savings. There are exchange-traded funds that mirror my current investments, and the ETFs are slightly cheaper. Is there any reason to switch to ETFs beside this cost savings? I don’t have to worry about capital-gains tax for these funds, given that they’re in an IRA, and I’m not particularly interested in intraday trading.

Given your circumstances, there doesn’t appear to be much reason to switch. Still, we need to consider the size of your nest egg and just how large or small the cost savings might be.

Your question highlights several advantages of ETFs. They tend to have lower fees than traditional mutual funds; they tend to be more tax efficient (their structure means they typically generate fewer capital gains); and they’re easier to trade. Most mutual funds trade at the end of the business day, while you can buy and sell an ETF at any point during the day. ETFs also can give investors access to a particular sector in the markets, like robotics.

As you note, your savings already sit in a tax-deferred account. And you mention that trading during the day isn’t important. So, we can cross off those reasons for switching. What’s more, you aren’t looking, apparently, to invest in specific market sectors. If you plan to stick with plain-vanilla index funds, an index mutual fund and an index ETF will give you similar performance. All of which brings us back to fees.

Here, the size of your nest egg comes into play. If your portfolio is large enough, “even a few basis points of fees can matter,” says Neil Brown, a certified financial planner at Burkett Financial Services in West Columbia, S.C. (A refresher: One basis point is equal to one one-hundredth of a percentage point. A fund with expenses of, say, 0.50% of assets is said to be five basis points more expensive than one with a 0.45% ratio.)

Let’s say your nest egg totals $2 million. Every fee reduction of one basis point saves $200 annually, Mr. Brown notes. If the ETFs you’re considering are, say, five basis points less expensive than your current mix of funds—and if your retirement lasts, say, 20 years—the savings in fees could amount to thousands of dollars.

So, should you switch? Here again, your preference for index funds might show the way.

For instance, Vanguard 500 Index Fund (VFINX), a mutual fund, has an expense ratio of 0.04%, and Vanguard S&P 500 ETF (VOO) has an expense ratio of 0.03%. If that’s the kind of difference you’re weighing, that might not be sufficient motivation to jump into ETFs.

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