TODAY’S LRFA POST CONTINUES ITS CONVERSATION WITH RAMSAY SLUGG, MANAGING DIRECTOR AT U.S. TRUST WHOSE EXPERTISE ON TRUST AND ESTATE PLANNING IS HIGHLY REGARDED. IN TODAY’S HE INFORMS US OF THE CONSEQUENCES OF FAILING TO PLAN FOR THE DISPOSITION OF ONE’S ART COLLECTION.
The failure to plan for the disposition of such collections can be costly on many fronts. In addition to federal income, estate, and gift tax considerations, the failure to plan means that the collection will end up with the estate’s personal representative, who often has little expertise in art and little, if any, direction for an appropriate disposition. These considerations may result in a grossly inequitable distribution of estate assets, perhaps to family members who do not share the collector’s passion, or an estate fire sale. The failure to plan most certainly will result in family discord and perhaps litigation. Finally, the failure to plan most assuredly will lead to a disposition different from what the collector would have wanted if he had taken the time to properly plan.
Part 2 of this article will focus on those planning options. At least four important matters, however—risk management, valuation, provenance, and liquidity—need to be addressed, regardless of the planning outcome.
For most, the decorative art and other collectibles they have around the house likely are adequately cov- ered by their homeowners insurance policies. But a significant collection calls for a more robust solution.
Risk management is first and foremost about putting into place safeguards to prevent damage to a collection. Preventing a claim for replacement or repair is preferable to filing a claim after the damage occurs.
Collectors should have a good grasp of the value of their collections and then engage an insurance specialist to determine the appropriate level and type of insurance needed. This can be as simple as coverage under a homeowners insurance policy or additional valuable items coverage that is separately scheduled from the homeowners policy.
For collections of greater value, the collector should engage an insurance professional who specializes in high net worth clients and who is able to provide not only an appropriate insurance policy but also risk- management practices concerning security, fire, and smoke damage prevention.
Accidental damage probably accounts for the highest volume of claims, followed by theft, fire, storm or water damage, and “lost/mysterious disappearance.” The chances of actually experiencing a claim can- not always be controlled, but certainly they can be mitigated by working with a risk-management specialist.
Accidental damage is much more likely to happen if the art is moved from one residence to another or loaned to museums. In these cases, experts again should be used to properly pack, handle, and transport valuable works of art.
Ramsay H. Slugg is a managing director and member of the National Wealth Planning Strategies group at U.S. Trust, Bank of America Private Wealth Management. He is a past chair of the Trust and Estate Division’s Charitable Planning and Organizations Group and current co-chair of the Art and Collectibles Committee of the Income and Transfer Tax Planning Group. He is the author of Handbook of Practical Planning for Art Collectors and Their Advisors, published by the Section.
Published in Probate and Property, Volume 30, Number 2, ©2016 by the American Bar Association.