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Planning for Art and Collections

Planning for Art and Collections

Art is estimated to be a $40 Billion industry. There are approximately 17,500 museums, 25,000 galleries, 25,000 historical societies, and 50,000 art shows in the United States alone. Business Week recently reported that approximately 1/3 of families with a net worth in excess of $10 million are art collectors. And those personal collections, valued at $4 – $6 Trillion nationally, will be transferred to others over the next two generations. Those numbers are stunning, but what’s even more surprising is that the great majority of these collectors haven’t given a thought to that succession process. Collectors and their families can lose as much as 75% in the value of the collection if items are sold through traditional means upon death.

These collections are not all Rembrandts, Monets, and Picassos. The collection could consist of antique firearms, Western American art, African ritual masks, textiles, folk art, or stamps and coins.

There are several reasons why the collecting community is not taking the proper precautions in their planning. Sometimes collectors just think of their collections as a hobby, and don’t realize the true long-term financial value of what they own. Also, traditional estate planning practice may just categorize these items under the general category of personal effects. That leads collectors to believe that it’s enough to just put a sticker on each piece designating who it goes to, or worse yet, simply instruct the children to come in and help themselves after the collector’s death.

All of these practices can lead to serious tax and financial problems for those left behind. In fact, the collection itself may have to be sold to pay estate taxes. And what if the children aren’t really interested in the collection beyond its liquidation value, an attitude more commonplace than you might think.Most collectors would like to see their art and collectibles go where they will be appreciated and enjoyed.

Like every other valuable asset the collector owns – art, antiques, and collectibles must be part of the comprehensive plan and be considered by all planning team members. Art and collectibles comprise a special asset class. It requires all of these experts to analyze, value, andincorporate the assets into general estate plans.

There may be issues with the collection concerning title, valuation, provenance, restoration, insurance, investment strategies, taxes, and much more, so every team member plays a role in the planning. When your planning is complete, you should understand such things as: how your collection will be provided for in your absence; how best to transfer your collection to your heirs if that is what you desire; how to remove the collection from the estate for estate tax purposes; how cash flow might impact your planning choices; and how to discuss the disposition of the collection with your heirs.

Traditional financial and estate planners are much more familiar with securities, real estate, insurance, and business interests. Many have no training, experience, or expertise in art, antiques, and collectibles; you should consider adding someone with art succession planning expertise to your team.That could even include a panel of experts such as appraisers, dealers, and curators. However, you must be careful that none of your advisors has a personal interest in acquiring your collection.

When it comes to art succession planning, we recommend that each client/collector go through the same 6 steps in order to consistently provide the best outcomes. Those six steps include:

  1. Discovery – developing a history (provenance) of each piece, as well as an inventory of the entire collection
  2. Diagnosis – analysis by an appraiser of the aesthetic quality, historical importance, and other aspects of the piece to determine a market value
  3. Design – the construction of a strategic plan that reflects the goals and wishes of the collector.
  4. Delivery – your team of experts will draft all legal documentation, establish all legal entities, change title when appropriate, calculate tax liabilities or savings, file appropriate returns, and take care of every implementation detail.
  5. Direction – communication of the plan to the beneficiaries, including training on their roles and responsibilities regarding the collection
  6. Distribution – oversight of the final distribution of the collection to beneficiaries, charities, museums, etc.

Art, antiques, and valuable collections should not be handled simply as part of your personal property along with used furniture, lawn mowers, and automobiles. They should be planned for and treated with the same respect that is given to all of your more traditional financial assets.

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