Advisors Need To Take Note Of The Client's 'Silent' Assets

The next time you’re chatting with a client who likes to speak ad nauseam about his or her passions, take note. The conversation could lead to a discussion of personal assets–artworks and collectibles–that should be integrated into a charitable or estate plan.

“Art collectors don’t want to have their collections carved up upon their death,” says Peter May, a financial planner and vice president of Wachovia Wealth Management, Charlotte, N.C. “They want the collection to remain intact for beneficiaries–a foundation, museum or their children.”

Yet, wholesale sell-offs of collections that have taken a lifetime to accrue can happen easily when clients don’t factor these “silent assets” into their estate plans. Too often, sources tell National Underwriter, clients try stealthily to pass on valuable personal property to children, only to be disabused of that notion when the Internal Revenue Service comes calling to do an audit.

To head off that possibility, advisors need to probe clients about artworks and collectibles they own during initial fact-finding sessions. That frequently comes as a big surprise to clients who view such assets as marginally relevant (if relevant at all) to a financial or estate plan.

In fact, says May, generally between 8% and 15% of a client’s net worth comprises their “stuff.” Assuming a $20 million estate, that can add up to $3 million in personal property–well within the IRS’ estate tax crosshairs.

To be sure, not all collectibles carry million-dollar price tags. Joseph Halpin, an automotive enthusiast, financial planner and president of J.P. Halpin & Co., West Chester, Pa., says most of the antique cars he sees at auto shows range from $100,000 to $400,000, and the vehicles constitute but a minor portion of his clients’ estates. Only occasionally does he eye a vehicle of rare vintage, like the Duesenberg or Pierce-Arrow, which can sell for millions.

Gaining a handle on a collection’s value needn’t be an expensive or time-consuming affair. Advisors point to a growing wealth of information on the web, including online auction sites like eBay, that offer detailed pricing information based on an item’s make, provenance, rarity and condition. Clubs and associations that devote themselves to particular collectibles are also a source of ready information.

But the truly prized painting, humidor or music box may require an appraisal by a specialist. Observes Jim Meyer, vice president of the Heritage Group, Melville, N.Y.: “As long as an item’s fair market value can be established–not by a charity, which should never do that–then the owner can incorporate the asset into estate planning in terms of gifting.”