Art Collection and Other Collectibles Does Your Estate Plan Get an “A”?

Susan Pilcher, First Republic Financial Planner, Spectrum

Do you have an art collection, Uncle Ned’s stamp collection, or perhaps a family “treasure” passed down through the ages that gathers dust in the closet? Do you know the value of these items that decorate your home or hide in the closet? If you do, have you thought to inform your insurance agent and estate planner that you own an original Monet or a Louis XIV Boulle Console table?

If you answered “yes” to the first question and “no” to one or both of the last two questions, you do not get an “A.” Your collectibles may be a valuable part of your estate and may not only require special handling in your estate plan, but a lifetime of management and care. Failure to effectively handle this asset may generate significant estate tax and possibly an inequitable allocation among your heirs. It also increases the likelihood of a major loss in value when your heirs quickly dispose of the property in a “fire” sale to pay tax. Loss in value can also result from improper record keeping, failure to perform routine maintenance, improper storage, inadequate appraisals, buyers taking advantage of novice sellers anxious for cash, transaction fees, bad market timing, etc. Thus, proper management and planning are essential to preserve the value of your collection and to ensure its proper disposition.

How do you get an "A"?

Maintain and Document Your Collection
Work with a preservationist who specializes in your collection’s medium to determine proper placement and storage. Perform regular cleaning and maintenance to keep the art in pristine condition. Keep all records of purchases, sales, authentication documents and any information regarding the history of the piece to establish its provenance and authentic¬ity. Maintain a current inventory of each piece with detailed notes regarding location, history of loaning, insurance coverage, history of appraisals, damages and repairs. Track the sales and purchases of other art by the same artist and keep abreast of news regarding him or her. Label each piece and correlate to the inventory. You may know each piece of your collection like the back of your hand, but your heirs may not. Have your collection routinely valued by a recognized appraiser and keep all appraisals to establish its history of valuation. Insure collection against loss or damage. Work with dealers, appraisers, museum curators and other collectors to identify that one piece you need to complete your collection and dramatically increase the value, or advise you on how to locate a hungry buyer looking for the right piece to complete his or her collection.

Include your Collectibles in your Estate and Charitable Plan
Inform your advisors of the value of your collectibles and work with them to establish an estate plan that will implement your goals for the art and address the tax liability. Have an open and direct conversation with your heirs. Do they want the art or the money? Take their wishes into account so that you and they attain the best overall result. Identify charities you want to benefit. With your advisor’s assistance you can even devise a plan that will preserve your collection for posterity yet provide the estate with a valuable tax deduction.

Whether you are a collector or the beneficiary of Uncle Ned’s surprisingly valuable stamp collection, regular maintenance and specific planning is essential to maximize the value, minimize the tax and preserve the art for future generations.

The views of the authors of these articles do not necessarily represent the views of First Republic Bank.