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| Home | Articles | The Price of Denial: The Hidden Costs of Failing to Plan for the Disposition of Your Collection |
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The Hidden Costs of Failing to Plan
for the Disposition of Your Collection
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by Michael Mendelsohn
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The Center on Wealth and Philanthropy at Boston College (www.bc.edu) has estimated that more than $41 trillion in assets will be passed intergenerationally by 2053. Of that sum, art and financial experts project that $4 to $6 trillion will be in art and antiques assets. Despite the vast amount of wealth in this area, collectors often fail to properly plan for the disposition of these assets.
Art can be overlooked in the estate planning process for two reasons. Lawyers often do not consider personal property an asset class that requires planning, and do not therefore always think to inquire about plans for what's on the walls and in the halls. At the same time, there is a widespread reluctance among collectors to discuss these assets with their advisors.
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Thornton Dial (b. 1928), Smooth-Going Cats Going to the Top, 1988. This is one of three Dial paintings Michael Mendelsohn is leaving to his three children.
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Frequently, I hear collectors say, "I am just leaving it all to my kids and loved ones. They can sort it out." This almost never works because first of all the children may not want the collection. And second, if the transfer is made as an outright bequest (absent any other lifetime planning), the estate tax liability will generally force the sale of the collection in order to settle with the IRS. Such sales are often hastily arranged because of the pressure to file the estate tax return, causing a less than optimal liquidation through an unplanned auction sale. This results in diminished revenues because, transportation, and the associated costs in selling the collection will be deducted from the proceeds. The value of the collection is significantly compromised when this happens, which could have been mitigated with proper planning during the collector's lifetime.
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Planning for your art and antiques assets can also prevent or diminish family disputes. If the assets are not appraised and reviewed for proper title and provenance, distribution of individual items can result in a highly inequitable allocation. If objects are simply removed from your home after your death to avoid taxes, family members run the risk of incurring penalties and back taxes when the removal is discovered.
I recommend having a conversation with your children to determine if they want any specific pieces of your collection. The next step is to express your intentions to your advisory team, which generally consists of an attorney, CPA, investment advisor or financial planner, an insurance agent, appraiser, and an art succession planner. This team will work with you to create an art succession plan that accomplishes your objectives. Your advisory team has a whole array of options that enable you to reduce your tax liability, create philanthropic capital, and increase the transfer of wealth to your heirs.
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If you have taken the time to assemble an important collection, it only makes sense that you should invest the time in assembling an art advisory team to create an art succession plan that is fully integrated with your other estate planning. Failure to provide for the disposition of your collection during your lifetime is unquestionably the most expensive approach to art succession planning.
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Michael Mendelsohn is president of Briddge Art Strategies Ltd. an art succession planning firm in Purchase, New York. His new book Life is Short, Art is Long: Maximizing Estate Planning Strategies for Collectors of Art, Antiques, and Collectibles is available in January 2007. Visit his Web site (www.briddgeartstrategies.com) to learn more about art succession strategies and to sign up for his free newsletter.
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