Succession planning for art and collectibles

Succession planning for art and collectibles

Most people are collectors of some kind. Some own art that has been passed down through generations, and their collections may be worth millions of dollars. Others start collections based upon their special interests—as common as coins and stamps or as unusual as musical wind-up toys and fishing lures.

What all collections have in common is value, either in dollars or in the simple pleasure that having the objects brings. In either case, developing what is sometimes referred to as an art succession plan is an important element of a collector’s overall estate planning. The goal of an art succession plan is to preserve and distribute the collection to heirs with the least possible turmoil and expense. Here are a few suggestions offered by collectors and art succession professionals.

Keep a comprehensive list of the items in the collection

A collector always should maintain a complete and up-to-date inventory of the items in his or her collection.

Along with the inventory, a collector should record all purchase and sale transactions. If available, authentication documents and the provenances (origins or sources of the collectibles and histories of subsequent owners) should be included. If the collection is small, a simple computer spreadsheet might suffice. Specially designed software is available for larger, more complex collections.

Know the collection’s value

The general rule for federal estate, gift and income taxes is that property is transferred at its “fair market value.” When dealing with publicly traded securities, that’s easy enough to determine. For collectibles of any significant worth, an appraisal or valuation of each item in the collection from a qualified professional, one who will meet the standards set by the IRS, may be needed.

When a collector or his or her estate seeks a tax deduction for the transfer to charity of items in the collection, the IRS requires a “qualified appraisal” for property valued at over $5,000, and when the value claimed is over $20,000, the appraisal must be submitted to IRS along with the proper tax form. An IRS Art Advisory Panel reviews appraisals reported onincome, gift and estate tax returns to determine their accuracy when the collection or work of art is valued at over $50,000.

When looking for an appraiser, most professionals suggest choosing a member of either the American Society of Appraisers, the Appraisers Association of America or the International Society of Appraisers.

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