Folks who bother about estate planning often have a tendency to collect interesting and often valuable items, from art and antiques, watches to jewelry, to firearms and baseball cards to numismatic or bullion coins. Unlike real estate, bank or brokerage accounts, or even business ownership interests which show up on tax returns if nowhere else, personal property items can pose an added layer of estate planning complexity, for several major reasons:
- Tracking. Personal property items are easily “lost” or forgotten. They may be lost in an attic in a house sold to strangers, pilfered by a family black sheep or flock, stolen by help, or misplaced in any number of other ways. Justin Anthony of Artwork Archive suggests a software solution (his firm offers one) to track such inventory, and advises an internet solution with “seat licensing” or limited and identifiable access so Uncle Fester can’t go a-messin’ with your catalog of Inquisition tongue loosening instruments. He also suggests a documents attachments function so that receipts, appraisals and other imprimaturs and bona fides of providence are easily fetched.
- Assignment & Transfer Since personal property can often sprout legs, it’s a good idea to make sure all applicable parties – including heirs, attorneys and advisors – are kept current on inventory lists or other tracking mechanisms, with clear instructions on who gets what – perhaps also copied to will addenda or trust “exhibits A” – to make sure nothing gets lost and no one is shortchanged. Photographs, serial numbers, and other identifying data can be helpful for more fungible items like firearms.
- Security & Insurance As mentioned, personal property is apt to travel without a trace, subject to such boosts by family members, help, and strangers of opportunity. It should go without mention (but I will anyway) that prudent precautions like safes, safety deposit boxes, and alarm systems should be deployed as appropriate. Since transportable valuables present greater risks – not only of theft but and even of fire/disaster complications owing to difference in insurance rules – the wise would do well to inquire of their insurers of any special considerations due such valuables. Often, separate deductibles, endorsements, riders, and proofs of location and ownership apply to keep insurance companies firmly on the hook.
- Documentation According to Mr. Anthony, especially for art and important antiques, it is critical to assemble “key documentation that bolsters authenticity, and records provenance, including certificates of authenticity, bills of sale, condition reports, artists’ notes, and photographs,” as well as appraisals and insurance reports. “Gaps in documentation can lead to extreme challenges in establishing provenance and/or authenticity. This is a field where fraud runs rampant and imitations have flooded the market for years— making it a challenge for even the most competent appraisers and authorities to certify authenticity. The more thoughtful you are with documentation of the work, the easier it is to establish value and authenticity.”
- Valuation Unlike stocks and dollar bills, for which an undisputable market price can be quickly determined, most personal property swims in a very illiquid market, where the price is very much in the wallet of the buyer – if a buyer can even be found. Often specialized knowledge is required to even come close to a fair price, and sellers who lack it are routinely screwed. Such market inefficiencies can breed complexity and opportunity, both for transactors and those looking to peg value, such as for insurance and sellers (priceless!) or taxes or buyers (I do declare! Who gives a whit for that motheaten old thing?)
- Estate Tax Issues Those who are or may be exposed to estate taxes need ponder one more complexity. Certainly, the valuation dichotomy explored in #5 should be worked to the very ethical motheaten limit to minimize tax bleed. Moreover, given personal property’s rambling’ nature, it would be wise to keep accurate inventories to make sure all value is properly accounted for if an estate tax return is due. Often, such items are tempted to be “forgotten” at tax time since – unlike securities, bank accounts, real estate and so on – IRS does not have a good bead on estate ownership of the assets, whether or not they are spirited away by family sheep, black or otherwise.