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Collectibles & Estate Planning: Meet Estate Planning Challenges

For some affluent individuals and couples, collecting items of value – like art or fine wines – is a hobby they’re passionate about. It’s not unusual for these individuals and couples to amass collections that are worth millions of dollars. If you have a collection of art, wine, vehicles or some other type of collectible that has significant value, it’s critical to conduct estate planning so that your wishes for your collection are fulfilled after you pass away. Otherwise, your heirs could be faced with significant challenges — financially, logistically and emotionally.

A Passion More Than An Asset

“In my experience, when people amass a collection of valuables, they view it more as fulfilling their passion than they do creating an investment or asset,” says Cadence Bank Executive Vice President and Trust Executive Patrick Pacheco. “Therefore, they often don’t think about the need for estate planning for their collectibles.”
According to Pacheco, there are a number of unique challenges when it comes to collectibles estate planning. “The first is that heirs often don’t share the same passion for the collectibles that their parents do,” he says. “So they may not want to deal with everything that’s involved in owning collectibles.”
This starts with having the physical space required to store or display them. “This will take some planning and expense if we’re talking about an extensive collection of artwork or vehicles,” says Pacheco. “Or if it’s wine, the wine must be properly stored so it doesn’t spoil. And the collectibles need to be insured, which is another potentially big expense.”
Another challenge is dividing a collection up among children. “Most collectibles have more value when kept together rather than divided up,” says Pacheco. “Also, collectibles can be hard to value, which can make it difficult to ensure that each child gets an equal share.”


Sell or Charitable Donation?

If heirs don’t want these and other responsibilities involved in owning collectibles, then owners need to plan for what will become of their collection after they die. Pacheco says the most common options are to sell the collection during their lifetime or donate it to a museum following their passing.

“If you sell it during your lifetime, you’re likely to have to pay a 28 percent capital gains tax rate, which can take a big chunk out of the proceeds,” he says. “However, this does convert a hard-to-value asset into cash that’s easier to divide among your heirs.”

Meanwhile, if your heirs try to sell your collectibles after you die, this can also be problematic. The sale of collectibles can be very complex and time-consuming, and heirs may not have enough liquid cash to pay estate taxes that may be due within nine months of your death.

All of this points to the importance of talking openly with family members about everyone’s wishes so you can plan accordingly. “If your children don’t want the collectibles, start talking to museums or charities that might be interested in taking them,” says Pacheco. Another option is to create your own foundation or museum, but Pacheco says that typically requires a sizeable collection worth at least $50 million to $100 million.

Gifting Your Collectibles

If heirs do want your collectibles, Pacheco recommends gifting the collectibles to them over a number of years. This way you can take advantage of the $14,000 per year annual gift tax exclusion per person (or $28,000 per married couple) before the $5.45 million per person (or $10.9 million per married couple) federal estate tax exemption kicks in.

Another solution is to create an entity that will own the collectibles after you die, such as a limited partnership. “Your heirs can own shares in the partnership, which makes it easy to divide the collectibles among them equally,” says Pacheco.

“As an owner of collectibles, the worst thing you can do is not plan at all,” he adds. “And just willing your collectibles to your kids isn’t planning because this presents them with a whole set of challenges. Instead, spend some time now talking about all of this with your heirs and an estate planning professional.”

Read also: Your Annual Plan: Three Steps to Your Financial Success

The professionals in Cadence Bank’s Trust Services department can help you in your collectibles estate planning efforts. To schedule a consultation, please contact your Cadence Trust representative today.



This article is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes.

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