Tangible vs. Intangible Property

Estate planning serves many purposes, but the one with which most people are familiar is distributing a person’s assets after their death. Those assets can range from real estate, cars and jewelry to bank accounts, intellectual property, and cryptocurrency. In short, just about anything you can own can be passed down through your estate plan—but how those assets are classified matters when it comes to the distribution of your estate.

What’s the Difference Between Tangible and Intangible Property?

As you might expect, “tangible assets” are physical items that you can see and touch, such as vehicles, art, furniture, clothing, electronics, firearms, and even pets, among other things. “Intangible assets” are items that do not have a physical form. That includes things like patents and copyrights, an interest in a business, non-fungible tokens (NFT) and other digital assets, and also bank accounts, stocks and bonds, retirement plans, and life insurance policies.

“Now, wait a minute,” you might be thinking. “The money in my bank account has a physical form! And I can hold my stock certificates and investment account statements in my hand! Shouldn’t they be counted as tangible?” While that might be a plausible argument, many courts have rejected it. Monetary assets, as a general rule, are considered intangible property. A coin collection might be an exception, because the unique coins themselves are what is being collected, not the face value they represent.

To the extent that intangible property exists physically, that physical form is a representation of the asset, not the asset itself. A blank sheet of printer paper and a stock certificate are both pieces of paper, but they don’t have the same value. The stock certificate represents something you can’t see, hold, or weigh: a share of ownership in a company, which is intangible.

(Then, of course, there is real property: land, and the physical structures attached to it, including buildings, fixtures, and improvements. While those things are technically tangible, they are usually considered separately from real and tangible property.)

Why Does It Matter Whether an Asset is Tangible or Intangible?

Whether property is characterized as tangible or intangible can affect its distribution. For example, some estate planning documents refer to “tangible personal property.” If you wanted to leave a loved one your shares of stock in a company, cash, or other monetary assets, and your gift in your estate plan consisted of “all my tangible personal property,” you would not have achieved your goal. Unfortunately, by the time the error was discovered, it would probably be too late to do anything about it.

Not understanding the difference between tangible and intangible property can also lead to disputes between heirs or beneficiaries during estate administration. When two heirs both expect to receive a particular asset, probate litigation may become necessary to resolve the dispute.

While it’s good to have a process and a venue (probate court) to address these conflicts, having your heirs fight in court about your estate probably isn’t the outcome you envision. Fortunately, with a little foresight, you can avoid confusion and ensure that the assets in your estate are properly characterized—and distributed.

Work with an Experienced Estate Planning Attorney

The value of working with an experienced estate planning attorney cannot be overstated, especially if your estate includes unusual, one-of-a-kind, or complex assets. An attorney who concentrates their practice in estate law will be able to explain to you how your various assets would be classified legally, ensuring that your property is distributed as you intend.

Your estate planning attorney will also help you explore options for identifying specific assets and directing them to particular individuals. For instance, both Michigan and Florida allow people to create a “personal property memorandum.” This document can be used in conjunction with a will or trust to add assets to an estate plan without completely revising estate planning documents. A memorandum of personal property cannot be used for all types of property, but it can help to clarify your intentions regarding some assets.