My good friend, Charles, now in his 80’s, was faced with a gut-wrenching choice several years ago. Having passionately collected Civil War artifacts for more than 70 years, his attention was turned to the question of what would happen to his beloved collection after he died. Like Charles, many collectors can spend a lifetime amassing a collection, but pay little attention to what will happen to it after they’re gone.
The first, and seemingly most logical place to start, is the collector’s children. If the collector has no children, or their children show no interest in their collection, they may search for another zealous collector that will pay their heirs top dollar for the collection. Lastly, a collector may choose to donate their treasures to a museum for future generations to enjoy.
Those are the three options that Charlie grappled with when deciding the fate of his prized collection. And those are the options we’ll explore as we tackle the topic of estate planning for your collectibles.
Keeping it in the family.
Having already outlived the life expectancy of an American male (78 years), Charlie knew it was time to make a serious decision regarding the future caretakers of his Civil War artifact collection. The first conversation he had, was with his children.
It’s natural and advisable for collectors to start with family. Collectors should (1) ensure that someone in their family is keenly interested in their collection, and (2), to make sure that person can afford the maintenance, insurance, and storage of the collection.
While keeping a collection within the family is always preferable, it’s not necessarily the easiest of the three estate planning options. For example, let’s say a collector has two children, and only one of the two are interested. How does the collector compensate the child that isn’t receiving the collection? If both children are interested in the collection, should it be split between the two? And if so, how do you decide who gets what? Lastly, if there is a genuine interest by a family member to take on the collection, but they’re not in a financial situation that will allow them to properly maintain and care for the collection, should the collector leave an endowment for them to care for it?
Get an appraisal.
Those are all tough questions wrapped in emotion! To help answer them, and other questions that will naturally appear throughout the estate planning process, the collector should have their collection appraised – both as a single collection, and as several smaller collections. This will help the collector determine the cash value they may want to provide those family members not receiving the collection, as well as the financial impact that splitting-up the collection may have on the overall value.
A few more tips about appraisals in the estate planning process:
- Ensure the appraiser provides “fair market value” documentation that’s compliant with IRS requirements
- Include, with your estate documents, the appraisal and the contact information of the appraiser(s)
- Update the appraisal every 5 to 10 years
- Consider using an collectible estate planning tool like RelicRecord.com
For financial endowment considerations, the collector should also forecast long-term maintenance (storage, insurance, etc.) costs of the collection to determine how much of an endowment would be needed to cover those costs.
Another consideration for a collector, is to pass on pieces of their collection while they’re still alive. This can be beneficial in a few ways. One, the collector gets to see his or her collection be transferred to the loving hands of its future caretaker, while continuing to enjoy their collection, albeit from afar. Second, the collector can ease the estate’s tax burden by making annual gifts. According to current U.S. tax laws, a collector can give up to $14,000 per recipient this year without having to pay any gift tax. To document such gifts, it’s recommended that the collector file a gift-tax return even though no tax would be due. You can read more about the gift tax law here.
Sadly, after careful deliberation, it became clear to Charles that none of his children or extended family had any real interest in his collection. As tough as it was for him to do, he faced the facts and responsibly moved forward with a plan to liquidate his collection.
Selling the collection.
Charles decided the best thing to do for him and his collection, was to find future caretakers why he was still alive. As painful as that decision was, it gave Charles comfort in knowing that the artifacts he cherished for so long, were going to someone else who would value them as much as he had.
Such a decision is fairly common, as some collectors simply choose to sell their collections. Being that Charles had already had his collection appraised, he knew what it was worth. In his case, he had several small groupings of artifacts related to specific people and battles that would be more valuable if they were kept/sold as a collection versus being broken-up and sold individually. He had many more items whose value was not affected if they were sold individually.
For the more expensive, complete collections, Charles consigned the collections to high-end artifact dealers to market and sell. For the individual items in his collection, he’s sold many items to friends, while others were moved through auctions.
With the consigned and auction sales, Charles incurred additional fees (commission and shipping costs) that lowered the dollar amount he ultimately received. However, it was a small price to pay for knowing they were sold to a passionate collector.
In the event Charles passes away prior to selling his entire collection, he has taken appropriate steps to ensure the items are handled and sold in accordance to his wishes. He’s documented the dealers, in order of preference, which he’s entrusted to sell whatever remains after his death. And the distribution of money generated from those sales has also been pre-determined and documented in his Will.
Donating to a museum or charity.
In addition to selling his collection, Charles made the determination that he wanted to donate several items to a local museum upon his passing. In Charles’s case, this was a fairly easy and straightforward process being that he’s worked closely with the museum over the years. However, such ease is not always the case for collectors.
Depending on the museum or charity, their policies, and financial practices, some may require an endowment fund to accompany the donation. Other times, a collector may not be comfortable with the museum’s agreement that manages how they will use or display the collection, and the museum’s right to sell or otherwise liquidate the donated collection.
All three options underscore the importance of working with an estate planning attorney that can help guide a collector through all of the emotional and financial decisions that have to be made.
As for my friend Charles, he’s doing great. While it’s been tough to let go of his treasured collection, he’s put the money he’s made to good use – tucking money away for his children, spoiling the grand-kids, traveling, and otherwise enjoying life!