Film lovers worldwide remember the climactic will-reading in the Clint Eastwood film Gran Torino. Friends and family gathered in an attorneys' office to learn the lucky beneficiary of a 1972 muscle car kept in pristine condition.
Surprisingly, in today’s market, a '72 Gran Torino with a 351 ci, 4-bbl engine may retail between $10,000.00 and $20,000.00. This is hefty price for some, but far from the hundreds of thousands of dollars certain earlier muscle cars can fetch.
While the Eastwood film played up the drama of the mystery beneficiary, it failed to present some issues that occasionally occur in estate matters. Family members sometimes challenge a will, upset that a particular asset was not left to them. And, creditors sometimes seek to capture estate assets to satisfy outstanding debts.
If the colorful and often-ornery Walt Kowalski had built up sizeable debts during his lifetime, creditors might be eager to get their tentacles onto his Gran Torino to pay their bills. One or more of his children, champing at the bit during the will-reading, might seek to challenge the will, hoping that if it were invalidated, they might be able to get the Gran Torino instead of its intended beneficiary.
In New York, family heirlooms and certain assets may be claimed by some of a decedent's family members as "exempt property," that is, assets that are "exempt" from passing to the decedent's estate. These assets may be kept from creditors and, potentially, from the decedent's problem-children. A 1972 Gran Torino may qualify as “exempt.” So, if Walt Kowalski lived in New York, would any of his family be entitled to claim it?
A surviving spouse or children under 21 may claim "exempt property." Section 5-3.1 of the Estates Powers and Trusts Law sets out the exempt items for the benefit of family members. The decedent's spouse is first entitled to the exempt assets. If there is no surviving spouse, then the decedent's children under 21 are entitled. Unfortunately, the decedent's children who are 21 and over fail to qualify. Walt Kowalski's children (who were all grown) could not claim his Gran Torino.
The main exempt asset is twenty-five thousand dollars ($25,000.00) in cash or marketable securities, checking accounts, savings accounts, certificates of deposit, etc. The accounts or securities, in aggregate, may be claimed up to $25,000.00. This means that even if a decedent built up sizeable debt, at least $25,000.00 could be claimed by a qualifying spouse or child and would be unavailable to creditors. The law, however, provides one condition. When estate assets are insufficient to cover a decedent's funeral expenses, the exempt monies must first be used to pay those expenses.
Also exempt are musical instruments, housekeeping utensils, household furniture and appliances, and even jewelry (unless specifically disposed of in the decedent's Will). The qualifying spouse or children may take, in aggregate, up to twenty-thousand dollars ($20,000.00) worth of these items. If, however, any of these items were used exclusively for business purposes they would not qualify as "exempt property."
The family exemption statute takes into account the sentimental value of certain possessions as well. The family bible, family pictures, books, DVDs, CDs, videotapes, etc., are also exempt, to the tune, in aggregate, of twenty-five hundred dollars ($2,500.00). Thus, the decedent's family can rest assured that sentimental possessions may be preserved from creditors or problem (non-qualifying) children for other than sentimental reasons.
Another major exempt asset is "one motor vehicle not exceeding in value 25,000,000." Walt Kowalski's 1972 Gran Torino would likely be exempt. Moreover, on the off-chance the Gran Torino was worth more than $25,000.00, it might still be "exempt property." New York law allows the qualifying spouse or child to claim the Gran Torino as exempt by paying to the estate the amount of its value in excess of $25,000.00. Thus, a $26,000.00 Gran Torino may be claimed as "exempt property" if the qualifying surviving spouse or child pays $1,000.00 to the estate. In the event this happened and the Gran Torino were willed to a beneficiary, the beneficiary would then be entitled to the $1,000.00 payment but would not receive the vehicle.
So, if Walt Kowalski died in New York leaving a qualifying spouse or child, the Gran Torino's mystery beneficiary might be irrelevant. The car could be claimed as "exempt property," and its intended beneficiary might receive nothing.
Interestingly, just because a qualifying spouse or child claims "exempt property" does not mean they are required to keep it. To make the claim, they must show that the property is "deemed reasonably required for the support of the spouse or children during the settlement of the Estate." If the decedent had only one car, which happened to be a classic muscle car, this standard might easily be met. Once the estate settled, the "exempt property" could then be sold by its claimant.
A qualifying spouse or child could claim $25,000.00 as exempt money and further claim a $25,000.00 Gran Torino as an exempt vehicle. Once the Estate settled, that claimant could sell the vehicle and retain the proceeds. There might even be tax advantages in doing so available to them.
The taxable basis in such property is the market value as of the decedent's date of death. If the property is sold shortly after death, the market value will likely have remained constant. The claimant would in that case owe no tax on the proceeds because the "exempt property" was sold for the same price as its tax basis.
The claimant may recognize a greater tax advantage if he or she sells the exempt property at a loss. Often, a car valued at $25,000.00 may sell to a dealer or private buyer for, say, only $20,000.00. The claimant would recognize a loss on the sale of the vehicle that he or she could use to offset other personal income in that taxable year. The claimant would also retain all of the proceeds. With assets such as motor vehicles, it is common for a loss to be almost built in to the sale, given the fact that they typically sell for less than market value.
Considering potential "exempt property" and its benefits is important when handling estate matters. The monetary and tax benefits to qualifying heirs are often overlooked. Further, an estate with multiple creditors seeking assets to satisfy debts may be ripe to be invaded when the law would otherwise protect certain property for the benefit of family.
by Thomas J. Lang
If you have any questions or comments, please contact Thomas J. Lang at (716) 856-3500, ext. 220, or via email at firstname.lastname@example.org