retirement

Why Estate Planning Demands Openness, Clarity and Focus

Prior planning and communication with loved ones can protect value and lessen disputes among heirs.

Tangible personal property in an estate can be one of the most difficult and potentially contentious assets to manage especially when dealing with hard to value collectibles and sentimental items. I learned this firsthand from my recent experience dealing with my parent's estate.

As a lawyer and financial pro, I have advised on estate issues and personally drafted wills and trusts for clients. I've had clients who are reluctant to designate personal property to specific heirs. Sometimes when I ask them at a signing meeting why this is the case, the response will be, "We need to think about it some more" or "I trust the kids will figure it on their own" or another more extreme variation of that theme which is the "not my problem" response.

Prior to dealing with my own family estate issues, I didn't think much about the consequences of my clients not taking the time to think about which heirs would inherit property. I recognize now this lack of planning can lead to arguments over intentions of the owners and fights among heirs claiming they are entitled to specific property. I learned some hard lessons.

Deeply held emotions can come to the surface as heirs argue over why they are entitled to specific property or what is an equitable distribution. This applies to items that don't have significant monetary value but have strong sentimental and emotional value. The same goes for high value items such as jewelry, art, wine, coins and other collectibles.

Collectible items can present specific challenges when they are subject to deterioration over time and require specific appraisal professionals to address valuation for sale or insurance purposes.

I would venture a guess that almost all of the clients of our wealth management firm and many Kiplinger readers have collectibles. As the expression goes, this is a good problem to have, as opposed to not being fortunate enough to have discretionary income to afford these luxuries. But as uncomfortable as it is to discuss for all parties involved, parents need to talk to their children about these collections while they are still living to avoid disputes over ownership and to deal with the logistical issues such as appraisal, insurance and eventual physical location of these assets.,/p>

Alexis Hill, J.D., principal of Hill Art Valuation, LLC, in Scottsdale, Arizona, receives many calls from children who have inherited artwork from their parents. She has seen how this can be overwhelming for the children to deal with, and even worse when the children's collecting tastes may differ.

Hill recommends discussing with your children which items they would like to keep and those they do not. Consider gifting items during your lifetime or designating items to the desired recipient in your will or trust to avoid confusion for your heirs. Lastly, artwork the children don't wish to keep may be sold during your lifetime, and the funds from the sale may be placed in a trust for your heirs to receive upon your death.

Any items that are gifted to a 501(c)(3) and other qualified organizations may result in a tax deduction depending on the value of the donation. Hill cautions that gifts worth more than $5,000 require an IRS-qualified art appraisal report, but a copy of the report does not need to be submitted to the IRS to claim this deduction for your non-cash charitable contribution. Gifts exceeding $20,000 require an IRS-qualified art appraisal report be produced and a copy of the report must be submitted to the IRS to receive a tax deduction.

It is also worth considering whether your heirs have the physical space to hang artwork in their homes or if storage will be a concern. Older pieces may require reframing, and this can be extremely expensive if the collection is substantial. If some of the art is unframed as a suite or flight of multiples, breaking apart the suite can significantly decrease the value and may require some form of equitable distribution among the heirs who may then decide to sell the suite intact for maximum value.

Storage concerns are paramount when dealing with a wine collection, according to Damian Reusch, manager at Vinum 55, a wine storage and membership facility located in Scottsdale, Arizona. As I learned from Reusch with my own inherited collection, time is critical in making sure that wine isn't exposed to excess temperatures or moved during a relocation process. Properly inventorying and valuing a large collection can be an arduous task. But there are online apps such as CellarTracker to help streamline this process.

Reusch cautions that in addition to maintaining a fully valued inventory, keeping proper records of a wine collection is necessary to maintain the provenance of the wine. Who has owned it? How has it been transferred and stored in its life? Such details can have a major impact on the value and sale-ability of a collection. This is why collectors look to specialized facilities that provide exceptional provenance to the collection.

Appraisal and insurance costs should be factored into the advanced planning process to deal with collectible assets. In most cases, finding suitable appraisers for art, jewelry or wine should be fairly straightforward. In some locations of the country, however, finding qualified appraisers may be more challenging. Additionally, gun collections or other more esoteric collectibles may present unique concerns of safety or may not be easily valued. State laws vary on the sale of certain inherited assets. It is always prudent to contact an attorney that is versed in these areas.

A simple discussion about your personal property before your death will bring peace of mind not only to yourself as a collector, ensuring that your collection is cared for after your passing, but also to your children who will benefit from this advance planning.

Robert Altshuler, JD CLU CHFC, founder of PlanningCore Wealth Advisors, LLC, provides investment and estate strategies to entrepreneurs, executives and affluent families in Phoenix, Arizona.

About the Author

Robert K. Altshuler, JD CLU CHFC

Partner, Chief Operating Officer, PlanningCore Wealth Advisors LLC

Robert Altshuler, JD, CLU, CHFC, is founding partner of PlanningCore Wealth Advisors, LLC. PlanningCore, a registered investment advisory firm headquartered in Phoenix, Arizona creates individualized investment and estate strategies to help clients navigate risk. PlanningCore clients have already achieved success and our highly credentialed professionals advise them to make smart decisions to protect their core wealth. Every client's financial journey is different, but PlanningCore's mission is always the same, to know and understand the destination.

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