Handling "Hard-to-Value Assets" - a Primer

Death is a very dull, dreary affair, and my advice to you is to have nothing whatever to do with it.

Somerset Maugham

After our third child, my husband, Jeff, and I decided it was time to get our proverbial "affairs in order."  A few weeks later, we were sitting in the office of a prominent estate planning professional, nervously considering exactly how we would discuss the delicate topic of, you know, the possibility of our untimely demise.  Just as we were ready to sneak out and broach this subject sometime in the future, Eugene strode confidently in, took a seat at his desk, put a hand on his tie, clearing his throat and said (in an unusually chipper voice), "Well, Mr. & Mrs. Jeffers, we are here to talk about what will happen to your estate when you die."  When our shock wore off, Eugene chuckled and went on: "I guess I prefer to address this basic understanding at the beginning of these meetings: it is when you die, not if!”

Since that day over a decade ago, we have used Eugene’s line in our own client meetings.  Though a grim reality, it is a fact: every collector will someday be a dead consignor (or benefactor, or late parent of an heir or heiress...you get the drift).  The sooner we get past that awkward acknowledgement, the sooner we can get down to business and make good, solid plans about one of the most important parts of our estate: financial advisors and attorneys call them “Hard to Value Assets,” but in the antiques and art world we call it the “stuff” that makes us smile (and that many of us have passionately pursued).  After all, who will know best how the “stuff” should be handled than the collector who found it, bought it, fixed it or cleaned it, researched it,  preserved it and loved it?  

Whether you are planning ahead or tackling the affairs of a late collector, read on for tips from a professional who assists with dozens of estates every year and understands the possible landmines of managing an estate with hard-to-value assets.

Planning ahead:

If you are working in advance, the best things you can do include:

• have a complete appraisal of your collections by a certified appraiser
• ask for references and call them
• provide the appraiser as much information as you can about the history of objects, repairs, subtle nuances, etc.
• store a copy of your appraisal with your estate documents
• talk with your heirs about your collection
• gauge their interest in owning all or a portion, and make decisions about how to divide items (or value).  Quick sidebar: it is certainly easier to divide a check than a painting.  Garth’s has handled tricky issues like this in many different ways - but, probably the most popular (and, seemingly most fair) is to put everything up to auction and allow heirs to simply buy the items they would like to own.  This provides an assurance of an exchange at Fair Market Value, and generally the purchase can simply be deducted from that person’s share of the auction disbursement.
• show them the appraisal and discuss values openly.
• tell them how you would like to have your collection handled (if there is a specific professional with whom you would like for them to work, a museum to which you have made a promised gift, etc.).  Specify if any special licenses are required by the professional who may help (for example, a Federal Firearms License for the sale of firearms produced after 1898).
• educate your heirs about the tax treatment of antiques and art; sit with a professional and make sure there is a thorough understanding of tax law and how the sale of the collection may impact your estate.  Usually, your estate will receive a “step up” in cost basis on assets.  This can have a significant impact on the possible capital gains tax if you have collected for a long period of time.
• document your desires in your will (Garth’s provides a codicil, upon request, that can be added to your existing will and specifies how to handle your collection).

When you die, certain relatives (even your spouse’s) may take legal priority. The question is, are these the heirs you would chose to handle your collection? A proper estate plan will give you control over who inherits and manages your estate, including Hard to Value Assets such as fine art, furniture, silver and jewelry.

If planning wasn’t their thing:

Are you the Executor or heir to an estate that contains Hard to Value Assets for which there is little direction provided by the deceased?  It can feel overwhelming to begin a careful process of thoughtful distribution when you have no idea about value of a collection.  Furthermore, establishing value through a comprehensive appraisal can be quite expensive - often costing thousands of dollars.  If I had the ability to counsel every Executor or heir before they took any action on a collection, I would suggest the following:

• Take a deep breath (and some pictures).  Often, during the hustle and bustle of dealing with the death of a loved one, things get moved and shuffled around (even misplaced).  Walk through the house and take some pictures - not details, but entire room shots.  If you can take a video, even better.  You don’t need to be Ansel Adams, just make a record of what was in the house.
• Consider changing locks.  It may not feel very good to think about the possibility of nice Mr. Smith next door using his emergency key to access your parents’ things when no one is around - but, it is a real possibility.  You cannot believe the number of times we have worked with estates from which the sterling silver has been taken (sterling silver, jewelry, coins and firearms are generally the highest risk items for theft).  A $50 locksmith charge has the potential to save you thousands in lost value.
• Deal with the most valuable objects first.  How?  Contact your closest national auction house (keep in mind that the closest national house could be several hours away), or the auction firm with whom the deceased worked most regularly.  Auction houses generally will offer a free evaluation of an item or collection, so an initial consultation with a reputable, high end auctioneer who deals in a wide variety of items can yield mountains of information.  And, a consultation does not commit you to working with someone; it is just a painless way to get things started.  Having a qualified professional who is “in-the-know” on high value items can help you avoid placing something valuable in the wrong venue.  
• Determine if you need an appraisal.  Consult the estate attorney or probate court, but depending upon how you will be disbursing the assets, an appraisal may not be necessary.  Most probate courts (and the IRS) accept auction values as a Fair Market Value for reporting purposes.  If you know you will be selling at auction, the auction inventory and settlement documents may be all you need.
• Avoid selling objects outright, unless you have obtained a third-party, Fair Market Value appraisal from a knowledgeable professional.  Remember that when you sell objects to an antiques, art or collectibles professional, that individual usually needs to buy at a reduced price in order to sell for a profit.  It is basic business, and a necessary fact.  However, the amount of markup is completely dependent upon how well you can negotiate.  Of course, we advocate for auction as a the most fair determinant of value:  auction places multiple professionals and collectors in a competitive environment, ensuring that a fair price is achieved for the seller.
• Don’t be afraid to ask questions and do your own research.  When in doubt, get a second opinion.

When you don’t know where to start, sometimes the best thing to do is to take some time to collect your thoughts.  If your first call is to a company who has a Certified Estate Specialist on staff, that person will likely have experience with dozens, if not hundreds, of situations not unlike yours.  Use their expertise to your advantage.

Garth’s Auctioneers & Appraisers is an international auction house specializing in fine art, American, European and Asian antiques, collectibles and many categories of Hard-to-Value assets including firearms, toys and dolls, coins, silver, jewelry and ephemera.  Garth’s provides speaking, writing and appraisal services to museums, historical societies, collecting groups, professionals in the legal and estate planning community, magazines and newspapers.  For more information about Garth’s, or to contact us about any of our services, visit www.garths.com.