This article appears in the November 2021 issue of Advisor’s Edge magazine. Subscribe to the print edition, read the digital edition or read the articles online.
Dealing with collections of art, antiques or other valuable property in an estate can be tough for executors, particularly if the deceased left little guidance as to their intentions.
“Collections have an emotional connection for beneficiaries and that can often lead to the biggest problems and litigation,” said Georgia Swan, tax and estate planner with TD Wealth.
Malcolm Burrows, head of philanthropic advisory services with Scotia Wealth Management in Toronto, said “major battles” can emerge when a will isn’t clear about a collection. “There are stories of pieces going missing and of accusations and fights among family members,” he said.
Burrows, who specializes in the estate administration of art collections, said he’s seeing more estates that include art collections, and a “growing and sophisticated industry” arising around their documentation and valuation.
However, collections today are not limited to traditional items such as art or coins but may include high-value sneakers or rare pens, estate experts said.
“I’ve seen a lot of sports memorabilia recently and wine is coming up a lot now too,” said Jandy John, director of business development with Concentra Trust.
In an ideal situation, a testator will leave detailed information about the collection, often via a separate document included by reference into the will, Burrows said. Identifying a collection in a will separates the property from regular personal effects and facilitates tax planning, charitable giving and estate planning.
“Collections are made up of movable objects, and movable objects move around,” Burrows said. “If you’re an executor, you have to find those objects — and to do that, you have to know where they are.”
A summary document would list each item, its location, its original purchase cost and its approximate value, which would help determine tax liability arising from selling or gifting the items. The will would also address how and to whom the collection, or individual items in the collection, should be distributed.
However, such careful estate planning is “more the exception than the rule,” Swan said, meaning that executors often have to rely on their judgment.
First, the executor will need to identify the items in the collection and have them appraised for probate and insurance purposes, and to help with the ultimate sale and distribution of the assets.
Next, the property needs to be stored properly. For example, a collection of vintage cars should be protected from the elements in a temperature-controlled garage, John said.
If there are no distribution instructions for the collection, then the collection will fall into the residue of the estate, in which case the property is to be sold — through an auction house, for example — and the proceeds distributed to beneficiaries according to their respective share.
However, executors should contact beneficiaries first about their interest in receiving the collection before selling the property, John said: “Send out the appraised value and [other relevant information] and give them a first chance at it.”
Communicating with beneficiaries proactively will reduce the chances of the estate administration being challenged, she added: “Without communication, you have a bunch of litigation to come.”
A beneficiary who had the same interests as the deceased may want the entire collection; other beneficiaries may simply want an item from the collection for sentimental value. If a beneficiary is interested in receiving an item (or the full collection) uncontested, then its corresponding value will be taken out of their entitlement under the will.
If two or more beneficiaries want an item, however, the executor may have to find creative ways to break the deadlock, Swan said. For example, a pearl necklace desired by two beneficiaries could be divided into two bracelets. Administering a collection “becomes all about negotiation, all about family dynamics,” Swan said.
Sometimes a collection turns out to be less valuable than the deceased believed, Swan said. And increasingly, beneficiaries today are not necessarily interested in inheriting their grandparents’ stamp or ceramic figurine collections.
“Almost the best thing you can do for your family [as the testator] is to give them permission [in the will] to just sell everything,” Swan said.