TRUST & ESTATE PLANNING

A Lifetime of Collecting Deserves Planning Today

09.06.2018 - Caitlin Malangone

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Collectibles are often the most valuable assets in an estate. What starts out as a hobby turns into a passion and eventually becomes a lucrative investment, built gradually over a lifetime.

The best way to preserve the value of your investment, both for yourself today and for your heirs in the future, is to start planning today. The six steps below will help you get started.

Avoid a Fire Sale: Don’t Let Taxes Catch Your Heirs by Surprise
If you plan to leave a highly valued collection to family members or other heirs, advanced tax planning is strongly recommended. Without a strategy, part or all of your collection might have to be sold quickly, at less than fair market value, to cover estate tax obligations. This may have unfortunate consequences, including the possibility of an inequitable allocation of assets for your heirs.

To avoid this problem, talk to your advisors about planning for illiquid assets such as collectibles. Certain techniques may allow you to remove items from your estate and pass ownership to your heirs, often with tax advantages. For example, you could set up a limited liability company for your heirs to share ownership of your collection or create a trust and fund it with your collection. 

Another option that could reduce estate taxes is taking advantage of the annual gift tax exclusion. Individuals can make tax-free gifts of $15,000 each year ($30,000 for couples) to as many recipients as they’d like. Any future appreciation on the items would be taxable to the recipient, not your estate. 

In total, individuals can give away $11.18 million and married couples can transfer up to $22.36 million free from federal estate, gift and generation-skipping transfer tax. Those gifts can be made during your lifetime, as part of your estate plan, or some combination of both.

Put It on Paper: What Do You Own, Where Is It, and How Much Is It Worth?
One of the most challenging aspects of incorporating collectibles into your estate plan is determining their value. Regardless of what you plan to do with your collection, it is important to maximize its value by keeping proper records of purchases, sales, authentication documents, and any information regarding the history of the item to establish its provenance (chain of ownership). 

In addition, you should maintain an up-to-date inventory of each piece with photographs and detailed notes describing the items, their location, any history of loaning, insurance coverage, appraisals and any damages and repairs. These documents are invaluable to auction houses, estate planners, tax preparers, and all future owners of your collection for tax purposes and sales. 

It is best to obtain professional appraisals for the fair market valuation of your collectibles every few years, as they will be valued at fair market value for estate tax purposes. Keep a record of these appraisals to establish a history of valuation. Don’t rely on valuations prepared for insurance purposes, because they reflect replacement costs, which can be several times the fair market value. This will help you avoid issues caused by inaccurate or overinflated valuations in your estate plan.

Have a Backup Plan: Who Will Protect Your Collection if You’re Not Able?
One of the most commonly overlooked tools that can preserve your prized possessions is a durable power of attorney. If you become incapacitated or otherwise unable to manage your own affairs, a power of attorney agreement allows a designated individual to act as your agent, ensuring your collection is handled according to your wishes. The process is inexpensive, does not require court intervention or supervision and can be drafted to assign responsibilities that are as broad or specific as you prefer. It can always be revised or revoked, and it terminates upon death.  

Share Your Passion: Does Your Family Know Why You Collect?
Collectibles are often difficult to divide equally among heirs, especially if they don’t share the same passion for the items.

If you plan to leave your collection to your children or other family members, and you want them to cherish it as much as you do, tell them why you are so passionate about it. One of our clients was able to engage his children in an extensive collection of rare musical instruments by telling them why it was so meaningful to him—a family lineage filled with musicians. Explaining your collection’s sentimental value or connection to heritage makes it more likely to be maintained as a legacy by future generations.

Preserve Your Collection: Find an Executor Who Knows How to Maintain It
To preserve your collection beyond your lifetime, it is important to choose an executor who has experience managing collections like your own. Regardless of whether your collectibles will be sold or distributed in kind, your executor will need to take possession of the items, store them, and insure them against damage and loss. Depending on the collection, routine cleaning and maintenance may be needed to keep the items in pristine condition.

In addition, your executor will need to hire qualified appraisers to value the property for estate tax purposes. If your collection will be sold, he or she might need to hire special advisors as well. So, it is important to choose an executor with the knowledge and ability to handle your collection properly. Also, make sure your estate has sufficient liquidity so your executor can pay the expenses associated with preserving, storing, and maintaining your collection. 

Reduce Taxes: Leave Your Treasures in the Hands of a Deserving Charity

When family members simply do not share your enthusiasm for a collection, or it becomes impossible to divide it equitably, a better choice may be donating it to charity and leaving other assets to your heirs. The donation could offer significant estate tax benefits, depending on how the charity will use it, and you could replace its value in your estate with a life insurance policy. Proceeds transfer to the next generation tax free and your collection finds a new home where it is admired and appreciated. 

If you plan to leave your collection to a university or museum, a written “gift acceptance agreement” may be helpful to ensure you and the recipient agree on how it will be used. For tax deductions, the IRS requires a written appraisal for collectibles valued at $5,000 or more.  

Collectibles also can be donated through a charitable remainder trust, private foundation and certain donor advised funds. Each offers potential tax benefits, depending on your adjustable gross income and other factors. An experienced estate planner can help you decide which is right for you.

The Takeaway: To Preserve the Value of Your Collection, Think Ahead

These are just a few suggestions to help you plan ahead and incorporate your collection into your estate plan. Additional considerations may be necessary, depending on the particular items you collect, your family dynamics, and the value of your taxable estate.

Talk to Us

Fiduciary Trust has a distinguished track record of efficiently settling estates with complex and illiquid assets, including collectibles. We can help you develop the right plans for your collection, including steps to preserve its value and leave it in the hands of someone who will appreciate its beauty as much as its monetary value.


This communication is intended solely to provide general information. The information and opinions stated are as of September 6, 2018, and may change without notice. The information and opinions do not represent a complete analysis of every material fact regarding any market, industry, sector or security. Statements of fact have been obtained from sources deemed reliable, but no representation is made as to their completeness or accuracy. The opinions expressed are not intended as individual investment, tax or estate planning advice or as a recommendation of any particular security, strategy or investment product. Please consult your personal advisor to determine whether this information may be appropriate for you. This information is provided solely for insight into our general management philosophy and process. Historical performance does not guarantee future results and results may differ over future time periods.

IRS Circular 230 Notice: Pursuant to relevant U.S. Treasury regulations, we inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. You should seek advice based on your particular circumstances from your tax advisor.

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