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How To Include Collectibles In Your Estate Plans

How to Include Collectibles in Your Estate Plans

Some of Peggy and David Rockefeller’s favorite charities are certainly very, very happy that the couple had such exquisite taste in art, jewelry and other collectibles.

In May, Christie’s auctioned off the Rockefeller collection—proceeds from which all went to Rockefeller-selected charities—for a mind-blowing $832.6 million. A Claude Monet water lilies painting fetched $84.7 million. Even a pair of David Rockefeller’s martini-shaped cufflinks garnered $13,750. Fortunate beneficiaries of the auction’s results include Harvard University, the Museum of Modern Art (MOMA) and the Rockefeller Brothers Fund, a private family foundation.

Treating your collection as a valued asset

If you’re a collector, you understand the Rockefellers’ passion for accumulating items that are meaningful and often valuable. You’ve probably spent significant time and money (maybe not quite $833 million) assembling your collection. Depending on your interests, you might have one or several collectible categories: postmodern art, vintage cars or mid-century furniture, just to name a few.

Your private collection – also known as “passion investments” – reflects your personal taste, interests and deep knowledge of your subject. It is clearly an important part of your life. However, have you also treated your collection as an important part of your financial portfolio? If not, you may want to consider doing so now.

Why collection planning can’t wait

Many legal, financial and tax advisors don’t include collections in their client planning. Why? It can be incredibly difficult for heirs and estates to appraise and distribute private collections.

However, if you overlook doing estate planning for your collection, your heirs may have to deal with the consequences. Your collection could lose value or be dismantled. In addition, your heirs could face unexpected estate or income tax, as well as unnecessary grief about how to fairly distribute beloved collectibles.

There’s a lot you can do now to protect your collection when you’re gone. Here are some points to consider as you start planning how to handle your collection as part of your estate.

Discussing your collection with your heirs

For estate planning purposes, a collection is defined as a group of items that have value due to their quality, age, historical importance, unique nature or market demand. Your collection could range from coins and gems to art and historical ephemera.

Your first order of business: Have you discussed your collection with your heirs? This can be a delicate discussion, but it’s usually best to avoid surprising people when they read your will. By talking to your heirs now, you’ll also get an idea of whether they plan to keep the collection or hope to eventually sell it.

Also, do specific heirs want only pieces? This information can help you determine in advance the best way to distribute the collection fairly to multiple heirs, especially if you have items of vastly different values.

Gifting collectibles: now or later?

Perhaps you’ll decide you want to give some items to family members while you’re still living. “Face-to-face” giving can be very satisfying.

However, you should also consider the tax implications of these gifts. If you give items to a single individual valued at less than $15,000 in one year, you may avoid having to file a gift tax return.  Alternatively, larger gifts will count toward your $11.18 million lifetime estate and gift tax exclusion.  The value of these items will be out of your estate and not taxed as part of your estate.  You should discuss gifting strategies with your estate attorney.

Passing down vs. selling your collection

Many collectors plan to leave their collection to their family’s next generation, particularly if the collection is closely connected to their family history. These collectibles could include antique furniture, books and family papers. Collectors see this as passing along the stewardship of a family legacy.

However, many serious collectors make the difficult decision to sell their collection rather than leave it to heirs. This can be particularly true if the collector feels the items will create a financial or logistical burden for their heirs.

If you don’t plan to pass the collection to your heirs, consider planning strategies such as selling the collection—either during your lifetime or at your death—using the collection to fund charitable intentions, making gifts during your lifetime or shifting highly appreciated collectibles outside of your taxable estate.

And if you’re thinking of selling your collection, consider whether the collection is more valuable if sold in its entirety or as separate pieces. If some pieces were purchased many years ago, they may also have appreciated significantly in value. Keep in mind that collectible sales carry a taxable capital gains rate of 28%. This is higher than the 20% maximum capital gains rate on financial assets.

Donating your collectibles to charity

Are you hoping, like the Rockefellers, to donate your whole collection, or items from it, to a charity or museum? That’s a noble intention. Donating your items to a museum is a wonderful way to share your collection.  However, it is helpful to begin a conversation early with the museum so that you can develop a partnership and learn their policies.  It is possible that certain parts of your collection may be more appropriate for a museum donation than others depending upon the focus and needs of the museum.

Before finalizing your donation, also compare the tax benefits of making a lifetime gift versus a transfer-at-death gift. You may be eligible for a charitable income tax deduction, but you should first seek specific legal and tax advice.

Other charitable institutions besides museums could benefit from your collection.  You could donate the collection to the charity of your choice or sell it and donate the proceeds.  If the collection is sold and the sale proceeds are donated to charity – as was done by the Rockefellers – you will be able to take the full fair market value as a charitable deduction (up to 60% of your adjusted gross income).

Inventorying and appraising your valuables

Whether you pass down your collection to family, donate it elsewhere or sell it, it’s important to maintain an accurate and complete inventory. A good inventory makes it easier to track the provenance of each item and to valuate items for future appraisals or sales. It’s also a good idea to maintain with your inventory a list of trustworthy dealers and appraisers within your collection’s field.

A good inventory includes:

  • Dates of purchases or sales, by and to whom
  • Details of loans or gifts
  • Appraisal and insurance records
  • Damage and loss records

Professional appraisals of your collectibles are important for a number of reasons. For one, appraisals help determine each item’s fair market value (FMV). Collectibles’ FMVs are determined not by a set price tag, but by the interplay between how much an educated buyer is willing to pay and how much an educated seller is willing to accept.

You need to know a collectible’s FMV in order to determine estate and gift taxes, just as you would with other assets. Also, if you decide to gift a part of your collection valued at more than $5,000, you must substantiate that value with a professional appraisal by a qualified appraiser.

Insuring your collection

Is your collection properly protected? Theft and accidents happen. There are several ways to insure your collection:

  • Include items in your homeowner’s insurance as part of your home contents
  • Ask your insurer write a separate insurance schedule (also called a personal articles floater or endorsement) for your collection
  • Take out blanket coverage that insures the collection along with other personal assets

Consider working with an insurance company that specializes in dealing with artwork and collectibles. Also, your insurer will typically need an appraisal of the collection when the insurance is underwritten and every five years thereafter.

Planning for your collection starts now

As you can see, your collection can be a very complex asset that requires specialized planning. When you establish an appropriate succession plan—and support your choice with inventories, appraisals, insurance and a legal framework to gift now, sell or later donate your collection—you can feel confident that your collection will be handled exactly as you wished.

Important disclosure information

Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable.

Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.

This article is not a substitute for personalized advice from RegentAtlantic. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.

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