When most folks think of estate planning, they know that they need to plan for what will happen to their house, their cars, and the contents of their bank accounts and stock portfolios: the largest, often most important assets that should be included in any good estate plan.
But what about the household goods and furnishings?
For the smaller things, like contemporary furniture, appliances, clothing, pictures, hand and power tools, and the miscellaneous items in the basement or garage, we normally leave those items equally to the children. We rarely have a problem with them sorting out those items amongst themselves. For a rare case in which that could be a problem, we empower the person in charge of the estate to hold an auction and invite the beneficiaries to come and bid on what they want. Once again, though, these ordinary types of personal property rarely cause difficulties.
However, collections can be more challenging. Examples we have seen involve coin or stamp collections, antique dinnerware, firearms, model railroads, and, in one very unique case, we had to deal with a collection of unopened whiskey decanters with pictures of Elvis on them!
For folks setting up their estate plan, collections may get overlooked. However, that can be a costly and emotionally trying mistake. Well-meaning parents can set up an estate plan that easily distributes the bulk of their wealth in real estate, stocks, bonds, and mutual funds but fails to address the collections and other valuables—which leaves the children to spend often enormous amounts of time sorting and valuing their inheritance.
Consider the recent story in the New York Times about the well-meaning father who left his daughter his home full of collections. While the daughter was able to obtain $30,000 from the collections of value, she spent two years sorting through the house and deciding what to sell.
Many collectors have no idea what their collection is worth, or they make the mistake of assuming that their children will keep the collection. Unlike a house, which has been appraised, collections are often difficult to assign value. After all, a collection has not only monetary but emotional value—sentiment that may not be shared by the children.
Having a plan in place for your valuable collections and talking to your children about their inheritance will unburden your children after you’re gone as well as help them decide what should be kept and sold.
You should have your collection’s value assessed. This is often the trickiest piece of leaving your collection. The value of a collection can fluctuate, depending on the time, who is appraising it, and whether or not the company appraising it is going to sell and get a commission. Those with large or extremely valuable collections might consider getting them appraised by the IRS art advisory panel, which can issue a value that is binding on their part (but not on the owner’s part).
When you know what your collection is worth monetarily, you should determine who will receive it and whether or not they can sell it. By talking to your children now, you can determine if they would be willing to keep and add to your collection. (If not, you may consider selling it now.) Consider splitting your collection into good, better, and best. Tell your children that the best really shouldn’t be sold, the better should only be sold in emergencies, and the good can more readily be sold.
Valuable collections or pieces can be given to heirs in a trust to protect the pieces as well as the heirs. If the heir files for bankruptcy or is sued, the collection can be protected and held until the heir can safely take possession of it.
Another option is giving the collection away to a museum. This depends greatly on the worth of the collection to the museum; museums have to pay to maintain whatever they take and may accept a collection only if it is accompanied by the cash to foot that bill.
Whatever you decide, it’s crucial to plan. Doing so in advance can save your heirs time as well as a large estate tax bill—which will be expected by the IRS soon after your death, whether or not your children have finished sorting through your collections.