If you are a collector, or an aspiring art collector, your collection is likely an asset. Even if you collect strictly as a matter of passion with no thought of value or eventually selling, as most collectors do, your art collection (or whatever you’re collecting) is a part of your estate. As long as the objects in that collection have a monetary value, they increase your net worth and might have tax implications for your heirs. For that reason, it’s not a bad idea to manage your collecting like it’s a part of your financial and estate plan. Minus proper planning, all of your life’s hard won accumulation will fall victim to rapacious taxation and the greed-based feeding frenzy of your loved ones, post your demise. Without a proper plan, non monetary assets - real estate, art, other collectables – will sell at discounts of as much as 70% when they’re liquidated for distribution to heirs and for paying taxes. Opportunistic dealers and other collectors will be very happy to scoop up your treasures at bargain prices, but that may not be your ideal vision for the perpetuation or your legacy.
The first thing you'd want to do to this end would be to inventory and catalog your holdings. There’s software and apps for that. Don’t do it the old, analog, ledger book and a fountain pen way. It can't be in a safe deposit box or someplace where nobody knows where it is or can’t get to it. Cataloging should include details like pictures of identifying marks, bill of sale, serial numbers, appraisal report, et cetera. Accuracy and accessibility will be important later. Detailed and accurate cataloging will one day be your executor’s best defense against fraud, challenges to rightful ownership and sticky fingers.
Valuing your assets correctly is very important and not always as easy as we'd like it to be. Art and other collectables need to be professionally appraised and insured accordingly. Guess-timations will almost always be wrong. Under estimating the value of your collection will make for unpleasant surprises regarding taxes or when liquidating (selling). Underinsuring could cost tens of thousands in losses.
Your financial advisor has a good idea of what your estate and heirs' tax pictures will look like upon your death. That’s a pretty basic part of doing that job. They may not have as firm a grasp of what that looks like when considering that art collection. That’s a more specialized area. Estate and/or income taxes will be an issue though and you’ll need sound counsel to avoid leaving a mess. It may be a good idea to give away the highest value items during your lifetime, thereby taking a nice tax deduction for yourself and reducing the value of, and tax burden on your estate.
Once those bits are sorted, you can start to focus on to whom and how you will give your art away. There's more one way to get this right and many ways to jack it up too. Once again, you’ll want professional counsel on this. It has to be right for you and for whomever will be the recipient(s) of your largesse. Please don’t leave surprise gifts here. Recipients will have planning to do as well, so let them know what you’re intending. There’s also the possibility that your favorite museum or eldest child or your alma mater won’t want your stuff. Maybe they can’t afford it. Imagine the tragedy of a beautiful work of art being carelessly liquidated to pay the inheritance taxes and buy tacky nonsense with what remains. Again, there are dealers and other collectors waiting eagerly for you to make these mistakes. Do not accommodate them.
With all of that (and likely much more) measured and accounted for, you can then get about formulating your estate plan. You’ve spent your life passionately accumulating beautiful things for which you’ve accepted the responsibility of stewardship. If you take this seriously, you know that proper estate planning is as important to that stewardship as buying, showing and caring for your collection during your lifetime. I cannot over emphasize the need for competent, professional counsel. Read everything and hire the best people you can. You cannot afford not to.
William S Jiggetts