From cars to comic books: 7 estate planning tips to protect your collections
As a lifelong “car guy”, I’ve been adding to my car collection for 35 years. As a financial planner, I realized there are implications for my wife and daughter that are different from most other investments and assets people own. In my case, they are classic cars, but the same issues apply to any type of collectible that has substantial value. Your collection might consist of comic books, baseball cards, artwork, jewelry, antiques, coins, or a library of rare books. Often people who have one collection have others, which makes the situation worse.
The problems start when you die and the heirs have no knowledge or interest in your lifelong passion. They have no idea where to start or even who to contact when it comes to your specialized interest.
- How do they rate what you’ve spent years collecting?
- How should they sell your valuables?
- What documents need to be changed or needed for the full value of the asset to be realized on a sale?
- What are the tax implications they need to consider and how will this affect the rest of the estate?
- Who will look after the collection while its disposition is decided?
- Should part or all of the collection be donated to charity or a museum?
- What assurance is needed while all of this is being figured out?
This is only a partial list of details that should be decided in advance for a spouse or children who are likely to be the executor(s) of your estate. Often this is not the case, and the task is so overwhelming that the collection is sold at knockdown prices just to get rid of the problem. Sometimes it is ignored, and the collection is stuffed and forgotten. We’ve all heard of priceless works of art found in a basement or attic. For those of us in the classic car world, we dream of discovering a classic Jaguar or Ferrari barn find. Sometimes entire car collections have been locked up for decades. There are TV shows devoted solely to this topic. Every car found in a barn was someone’s pride and joy that was left behind and neglected.
I realize that other than going for an occasional trip around the country or attending a national show, my wife has little interest in my lifelong hobby. Fortunately, she tolerates my habit. This leaves me and my fellow collectors with the problems I have described.
What there is to do?
1. Papers, papers, papers
The first and most crucial step is to document what you have. Make sure anyone who comes after you can easily understand what’s in your collection and what it’s worth. This record should be updated as the collection grows and values change. If possible, include details about your collection in your records. It will help them understand why your 1966 Shelby Cobra is worth $1,200,000 and not $600,000. History and condition often tell the difference between these values, whether it’s a classic car or a baseball card.
2. Who and where?
The next breadcrumb you need to leave is who to contact to sell your collection. Executors find it easier to auction everything in one lot, regardless of what is being sold. This fire sale approach can significantly reduce what your heirs and estate net. Often you will want specific items to be given to the specialist or location that will maximize the selling price. These specialists can also value the collection more accurately for estate tax purposes. This is especially important for high net worth individuals, where a federal estate tax may apply. A 40% tax is serious business and having the wrong value can be very expensive! I’m sure you don’t want the IRS looking up values from a book or eBay! Be sure to include who to contact in your notes.
Even if there is no federal estate tax, there can often be capital gains taxes. Without knowing the cost of the items in your collection, your spouse could end up paying hefty capital gains on the sale of your life’s passion that he has no interest or knowledge of. Again, keeping good notes and documentation is key to not giving the IRA more than you need. Planning can also help reduce the tax impact. Most collectors would rather see part of their collection donated to a museum than sold to pay taxes to the IRS. If you leave instructions on what items and where to give them, the tax deductions could offset most or all of the tax owed on the sale of the rest of your collection. Often, donating the entire collection to one or more museums can offset other property taxes that may be due. Consulting your estate planner and accountant will help you make the right decisions based on your situation.
4. Keep it safe
Works of art should be stored safely in a proper air-conditioned environment while waiting to be sold or given away. A car collection needs maintenance and care. Jewelry, coins or any other valuables should be locked away in a safe place. Often collections are huge, require a large amount of space, and it can take longer to determine their disposition than the house or property where they were held. It is important that the executor knows where, who and how. The Store-More down the street isn’t going to cut it.
5. Cover it up
While we’re at it, let’s discuss the insurance that needs to be carried while everything is settled. The owner of the collection is deceased. In some cases, their insurance coverage ends at that time. The executor will need to take out an insurance policy to cover the collection against theft, fire and other perils. Without it, all can be lost, and it is often overlooked in one area.
6. Legal documents and records
Finally, make sure your legal documentation is up to date and in a safe and known place. Receipts, letters of provenance and title deeds must be accessible to the executor. Often in the world of classic cars, titles are signed but not transformed into the name of the collector. It can be a nightmare when the details needed to prove ownership die with the collector. This can be compounded when the previous owner and the collector are both deceased. Do yourself and your heirs a favor and make sure everything is in order.
7. Find a specialist
There are now estate planning services that specialize in helping ease the burden on families who are forced to deal with these types of situations. Specialists who collaborate with other experts to value and sell your life’s work. They help create a plan that reduces the tax burden and simplifies a complex problem. Find one that works in your area of interest and plan to make your family’s life a little easier. Don’t let your collection be the next barn find!