Collecting Opportunities

Collecting Opportunities

Article posted in Practice on 22 August 2017| comments
audience: National Publication, Two Hawks Consulting, LLC | last updated: 24 August 2017
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Summary

Collectors make great prospects for philanthropic planning if we know how to bring the discussion to them.

It is estimated that 30% of families with a net worth exceeding $10 million collect something – be it art, antiques, or classic cars. Often referred to as passionate assets, they represent both a challenge and an opportunity for advisors and their clients.

Many enthusiasts don’t think of their collectables as they do other assets – these items are loved, cherished, and coveted. They hold a meaning and identity that is incomparable to their economic value.

If you’ve ever been to a classic car show and stayed less than an hour, you did it wrong – to put it bluntly. Ask an owner about their gleaming, perfect specimen of a 1940 Duesenberg and you’ll get a detailed rundown of its history from the factory floor to present day, sparing no details in between. This is true for most collectors – be it toy trains or baseball cards.

That visceral connection is what makes planning for the “succession” of the collection so challenging. Yet, plan they must. Is the next generation even interested in the collection? Better find out. Who owns the collection? Better find that out, too. It’s the planner’s chance to make a huge difference in the final value to the family.

Collectibles are considered “tangible personal property” and are, therefore, taxed differently than other capital assets. Long term capital gains tax is at 28%, not 20%, like stocks or real estate – that’s a 40% bump. Furthermore, gifts to charity are complicated by the need for a qualified appraisal and the fact that the charity must be able to use the gift for its charitable purpose – for the deduction to be a fair market value instead of the less valuable cost basis.

Proper planning can address these issues, but advisors must first get the attention of the collector before presenting solutions that address their goals and dreams. Keeping the collection in the family can be accomplished only with solid planning – as well as preventing a fire sale to create liquidity to pay estate taxes at the death of the collector.

What matters is aligning the clients’ goals for their collectibles with the tools and strategies that will accomplish them.

Do we use a pooled income fund to sell of the collection little by little? Do we transfer to a private operating foundation and endow it with capital to keep the collection in the family? Do we utilize monetized installment sales to defer capital gains tax for thirty years as we liquidate? Any or all of these strategies may appeal to the collector – we need only to open the dialogue that other advisors fail to initiate.

Give me a call at (704) 698-4055 or email me at randy.fox@ezcharitable.com for more information on how charitable planning can benefit your clients.

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