Collectibles can provide enjoyment and potential profits during a collector’s life.
But they’re also potential headaches for heirs, because collectibles generally are less liquid, trickier to value and less divisible than financial assets.
They also can inspire emotional attachments and disputes among heirs, so advisors should help collectors focus on these assets’ unique characteristics when designing their estate plans.
AdvisorOne asked Jim Halperin (left), co-founder and co-chairman of Heritage Auctions in Dallas for his insights via e-mail on common estate- planning mistakes with collectibles and how collectors can avoid those errors.
Halperin outlines the right strategies to take below.
What are the key steps to take when working on an estate plan that includes a collection?
The number one mistake most collectors make is not working with their family to develop a will. We advise collectors to discuss all valuable objects with their families, and decide together what should be done with them–whether selling at auction or distributing among the family.
In one memorable case, a collector meticulously divided his coins equally (by value) between his son and daughter but failed to keep them updated on the market.
Rather than get the collection appraised before his passing, he left the two with instructions that they should seek expert advice before selling.
The daughter came to Heritage and was pleased to learn that her coins were worth more than $85,000 (and subsequently sold them at auction, netting well above that amount). Unfortunately, her brother had “sold” his share just eight months earlier to a pawnbroker for less than $7,500.
If no will exists, it may be best to leave the division to a third party. Perhaps an appraiser can value items individually so each heir can ‘buy’ their share at the appraised price.
The lesson here is that families must be involved in the estate-planning process. If they don’t share your love of collectibles, you might decide it’s better to dispose of the collection in your lifetime.
Regardless, your family should have a basic understanding of the collection, its value and how you want the proceeds distributed.