How to avoid tarnishing family harmony when passing down jewellery

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When a matriarch passes away, the process of mourning and the reading of her will can be overwhelming for the family.

If she leaves a substantial jewelry collection behind to be distributed among her loved ones, however, the emotional and financial implications can become even heavier, including sparking possible family drama.

Here, three experts in estate planning, financial planning and corporate etiquette explain that, with advance discussion and a bit of education, a matriarch can rest in peace, knowing that the family jewels continue to shine in the hands of their new owners.

Meghan O’Neil, Partner, Mills & Mills LLP in Toronto

What sort of advance planning should a matriarch or patriarch consider when leaving a substantial jewellery collection to their loved ones?

“As with most matters related to estate planning, this will vary depending on the family dynamics at play. But where parents feel it is appropriate, it can be helpful to speak with their adult children about the jewellery items each of them would want upon their passing.

Having these family conversations together can help avoid disputes surrounding the distribution of these items following death. Parents are, of course, free to leave their jewellery to their children in whatever manner they prefer, but if they are striving to be as fair as possible among their children and to avoid potential disputes among them, they should try to avoid assuming which items a child may want based on their gender, marital status, or otherwise. They may be surprised upon having these conversations with their children which pieces each wants (or doesn’t).

The age of the testator’s [will-maker’s] children is important, as jewellery of significant value would need to be held in trust for minor children until an age when it is appropriate to give this jewellery directly to the child. We often include a clause in the will that gives executors discretion to deliver personal effects (which includes jewellery) to minor children when the executors deem this appropriate, which can be before that child reaches age 18. If there is a piece of jewellery of considerable value and a parent would not want a child to have that item outright until a certain age, this should be made clear in the will.

The executors will have to maintain insurance on valuable jewellery while it is held in trust for a beneficiary. If not dealt with more specifically in the will, at the very least, the general powers of the trustees mentioned in the will should allow for the executor to cover the cost of insuring such items from the estate.

If any children don’t live locally, who is expected to cover the cost of packing and delivering the jewellery should be stated in the will. If nothing is stated in the will in this regard, the beneficiary of that jewellery will be expected to cover the cost of packing and delivery. These types of costs may seem incidental but whether the estate or the beneficiary should cover such costs can be the type of matters beneficiaries squabble over. Stating this in the will also ensures the executor has clarity on how these costs are to be dealt with, as an executor may not otherwise know if these costs related to the distribution of the jewellery is a proper expense of the estate.

Whether the distribution of items will be dealt with in the will or a non-binding letter of wishes outside of the will is an important consideration. If an item is specifically listed in the will, the executor has a binding obligation to deliver that item to the beneficiary listed in the will. If the distribution of items like jewellery is dealt with in a letter of wishes … the executor is under no binding obligation to follow the wishes expressed in that letter.

Although not binding, the benefit of dealing with personal effects like jewellery in a letter of wishes is that the testator can change this list as she pleases should she change her mind about how she wants items to be distributed, or should she choose to give some items away while living instead. This saves the costs and time that is required to update and re-sign her will each time she wants to make updates.

The letter of wishes outside of the will can also maintain privacy regarding how these items are distributed, as a will submitted to the court for probate will become a publicly accessible document.

If a testator does want to prepare a letter of wishes to deal with the distribution of jewellery, it is prudent to have this list reviewed by the lawyer drafting the will to ensure none of the wishes expressed in the letter contradict what is in the will.

If a testator does prepare a letter of wishes listing how she wants particular items distributed, it’s a good idea to take pictures of these items to accompany the description of each piece to avoid any confusion or dispute over the item being described.

If the testator wants to leave flexibility regarding how jewellery and other personal effects are distributed, she can state in the will that these items are to be distributed among her children, as they agree, and to the extent of any disagreement, as the executor determines. If a child is also an executor, whether it is appropriate for that child to have the final say in this distribution needs to be carefully considered. Alternatively, the testator can state that if there are any disagreements, the children have to draw lots, or follow some other mechanism for resolving.

The timing of when jewellery will pass to the next generation should be clear. Some parents want to leave particular pieces to children upon their death, while others want to leave everything to the surviving spouse … with all items passing to the next generation on the second death. This consideration is especially important for blended families.

If there is a marriage contract in place, it is essential that this be reviewed during the estate planning process, as marriage contracts often set out how personal effects are to be dealt with upon the death of the first spouse. … If there are any inconsistencies, the terms of the marriage contract will trump the contradictory provisions in the will. … Spouses in blended families should also keep a record of which jewellery each brought into the relationship if they intend to keep that jewellery in their family and not that of their spouse.

The need to consider the sentimental value of these types of items cannot be overstated. Oftentimes, family members end up fighting over items that have the most sentimental value regardless of their fair market value.”

In Canada, what are the tax and other financial laws to consider when planning for the distribution of a jewellery collection after a matriarch passes away?

“In Ontario we often use multiple wills (a primary will and secondary will), which can simplify the administration of personal effects, including jewellery. The jewellery will form part of the secondary estate, which is governed by the secondary will. The secondary will is not submitted to the Court for probate. This maintains privacy regarding the terms of the secondary will.

Moreover, probate tax (1.5 per cent in Ontario on all assets over $50,000) will not need to be paid on the date of death value of the jewellery. As there is no need to declare the value of the jewellery on the probate application, the cost of getting these pieces appraised for this purpose is also saved. These items will also not need to be accounted for on the estate information return, which is submitted to the Ministry of Finance after probate has been issued.

It’s worth noting that there could be an exception if a particularly valuable item was going to be sold to a third party. If there are any particularly valuable items, the testator may want to consider dealing with these items in a third will (tertiary will).”

Cynthia Kett, founding principal at Stewart & Kett Financial Advisors in Toronto

What sort of advance planning should a matriarch or patriarch consider when leaving a substantial jewellery collection to their loved ones?

“To start, it’s helpful to do a full inventory of the various items, supported by photographs or videos. Consideration should be given to ‘sets.’ For example, if there was a set of earrings, necklace, ring, and bracelet, the set would ideally be gifted to the same recipient and/or branch of the family.

Next, ask potential beneficiaries whether they have an interest in any of the items. Sometimes even valuable pieces aren’t desirable to the next generation. Family members might be asked to identify items they would most like to receive and the order of priority. In most cases, the initial poll should be done separately with each individual, rather than in the company of other beneficiaries, to avoid conflict. The giver can then take these preferences into consideration when deciding what to gift to whom.

A valuation of the collection pieces should be made by a qualified valuator, both for tax purposes and for gifting purposes. Capital gains on listed personal property (LPP – personal use property that tends to increase in value over time), is subject to capital gains tax, whether the gift is made during one’s lifetime or as part of the person’s estate. The tax is payable by the individual (or estate) who is gifting the asset.

To maintain family harmony, gifts should be allocated such that each beneficiary within the same generation (children or grandchildren, for example) receives assets of approximately equal value. If one beneficiary receives a valuable collection, another may receive cash or other assets of similar value instead.

If there are reasons for distributions of unequal value, the reasons should be well documented in writing. For instance, if one beneficiary received a meaningful gift earlier (a down payment for a home, perhaps), that gift might be taken into consideration when other assets are distributed later. Some reasons may be challenged later, but at least the intentions of the parent would be known.

Communication of the owner’s intent is key to avoiding or minimizing future conflict and legal action.

If there are some items which no one wishes to receive, they may be donated to a registered charity to reduce the donor’s or the estate’s income taxes payable. These tax benefits may be significant and will be valuable to the family as a whole.”

Consider gifting the assets while the owner is alive, rather than after his or her death. Doing so may be more expedient (less documentation and process required); more satisfying (may bring more joy to the giver and receiver); and avoids probate fees in jurisdictions where these fees can be substantial. Also, the assets can be located and distributed accordingly. If assets are gifted in a will and they can’t be located, that gift would fail, to the detriment of the intended recipient. Valuable collections need to be safeguarded. Beneficiaries will need to acquire adequate insurance for the gifted property, which would not be covered under general property insurance.”

In Canada, what are tax and other financial laws to consider when planning for the distribution of a jewellery collection after a matriarch dies?

“If both the adjusted cost base (ACB) and the fair market value of an item at the time of disposition are less than $1,000, there will be no capital gain or loss recognized on the disposition. However, when valuable collections are disposed (listed personal property – LPP), capital gains or losses can result. The taxable portion (currently 50 per cent) of capital gains are subject to capital gains tax. LPP losses can only be applied against LPP gains and can be carried back three years or forward seven years.

Family Law Act provisions should be considered as well. While each jurisdiction is slightly different, if the giver documents that a gift is to be given to one spouse for his or her own use and it (or property later substituted for that original gift) is kept separate from joint marital property, the gifted item will be protected from family law act claims in the future. If the giver further specifies that growth in the value of the gift is also to be excluded from net family property, the increase in the value of the gift (or substituted property) may also be protected.”

What other advisors should a matriarch consider if she is distributing her jewellery among more than one loved one?

“Estate, family law, and tax lawyers; tax accountants; valuators; insurance professionals; and family communication facilitators can all be helpful advisors to have when expensive collections are being distributed.”

Diane Craig, etiquette expert and founder of Corporate Class Inc.

What sort of advance planning should a matriarch or patriarch consider when leaving a substantial jewellery collection to their loved ones?

“Ensure clarity as to who is getting what and the items must be all clearly described so there is no confusion. [For example,] Mikimoto Pearl Necklace 10 inch – Grace Kelly Special Edition with gold and diamond clasp. Have a complete list and original documents and boxes all stored in one larger box.”

What are some of the common errors to avoid in terms of approaching this topic of conversation among family members?

“Avoid mentioning favoritism as a reason why one piece is left to one person, [and] avoid bringing it up at a time when everyone is on edge.”

What kind of language should a matriarch consider for her will if she is distributing her jewellery among more than one child or loved one?

“[She should include] thoughtful mention of the significance of the piece.”

Any tips for the executor of the will, in terms of how to navigate challenging discussions?

“Speak of the generous spirit in which each piece was given, not about the dollar value but the sentimental value and meaning. [It represents] a family legacy. Some of the pieces may never be worn perhaps but can be passed on from generation to generation in memory of the donor.”

7 mistakes to avoid when estate planning about jewellery

Meghan O’Neil, Partner, Mills & Mills LLP, offers tips on some things to avoid:

1. Not accurately describing items of jewellery in a will or letter of wishes, which could open up arguments among children regarding which item was supposed to be delivered to whom and could put the executor in difficult situation if he or she isn’t sure how items are to be distributed.
2. Lack of clarity regarding which items belong to the deceased, as opposed to his or her spouse (this is especially important in blended families).
3. Not considering who should receive a particular item should the first named beneficiary predecease the testator. If a testator’s child predeceases her, does she want to ensure jewellery that would have otherwise been delivered to that child be passed down to that predeceased child’s children?
4. Not making it a condition of a specific gift of jewellery in a will that the beneficiary must survive the beneficiary to inherit it. Without this, the anti-lapse provisions in the Succession Law Reform Act may result in a gift to a child, grandchild, or sibling being made to another person if the intended beneficiary predeceases the testator.
5. Not considering any restraints on gifting. For example, the terms of a marriage contract.
6. Not dealing with personal effects separately in the will. There should be a separate provision in the will that deals with personal effects like jewellery, given the nature of these items. If there are no separate provisions to deal with personal effects, these items form part of the residue of the estate. If there is more than one beneficiary of the residue of the estate, it will be difficult for the executor to distribute jewellery of varying values in a way that properly satisfies the distribution scheme set out in the residue provisions. For example, if the residue of the estate is to be divided equally between two children, it’s easy to divide a bank account equally between the two of them but dividing pieces of jewellery of varying values between two children in a way that achieves this same equality may not be possible.
7. Not having a “catch all” provision in the will that allows the executor to donate or dispose of items that the beneficiaries may not want.

Responses have been lightly edited for clarity and length

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