Estate Planning for Your Art, Collectibles, and Digital Assets

Estate Planning for Your Art, Collectibles, and Digital Assets
Yayoi Kusama INFINITY-NETS Source - Sotheby's

In a world where the definition of assets has expanded to include art, collectibles, and even digital holdings, estate planning has become significantly more nuanced. Many individuals fail to consider these unconventional assets when planning their estates, leading to potential complications after their passing. Here, we explore key aspects of estate planning for art, collectibles, and digital assets, answering pressing questions and shedding light on potential strategies.

Legacy and Planning in Art
Art mirrors passion, merits legacy planning. Options: donations, LLCs. Preserving essence is key. Strategic preservation emphasized.

Inheriting and Selling Art

Inheriting a valuable piece of art or a collection can often feel like navigating a labyrinth. As noted by RBC Royal Bank, an art collection is not just an asset, but often a deeply personal reflection of the collector. If you've inherited such an asset, the first step is to understand the value and significance of the art, which may require professional appraisal.

Appraisal, as emphasized by Morgan Stanley, should take into account the provenance (history and origin) of the art pieces, which can greatly impact the artwork's value. Post-appraisal, if you decide to sell the art, it may be beneficial to work with an art dealer or auction house. Remember, the goal should be to honor the legacy of the original collector while making the best financial decision.

Valuing Art in an Estate

When it comes to valuing art for an estate, BNY Mellon Wealth Management suggests treating art and collectibles just like any other asset. As RBC Royal Bank advocates, creating a detailed archive of the art collection using internationally recognized parameters like the Getty Object ID can greatly assist in the valuation process. Appraisals should ideally be performed by a qualified, independent professional who specializes in the type of art being valued.

Tax Considerations on Inherited Art

As per the IRS rules, inherited assets, including art, are subject to estate taxes if the overall value of the estate surpasses the federal estate tax exemption. The tax is calculated based on the "fair market value" of the assets at the time of the original owner's death, not their original purchase price. However, if you decide to sell the art, you may also be subject to capital gains tax.

Moreover, as BNY Mellon Wealth Management highlights, donating valuable collectibles to a charitable organization can also be a viable option to avoid potential liquidity issues around estate tax, while creating a lasting legacy.

Planning for Digital Assets

TYLER HOBBS (B. 1987) Fidenza #724, Price realised GBP 365,400 Source - Christie's

With the rise of cryptocurrency, NFT's and blockchain technology, digital assets have become a significant part of many individuals' portfolios. As Julius Baer emphasizes, ensuring that these assets are not lost after one's death is crucial.

There are two main types of crypto and NFT asset management to consider: self-custodial wallets and third-party custodial wallets. If using a self-custodial wallet, it's crucial to record and safely store the public and private keys or the seed phrase, and provide for their access after your death. If using a third-party wallet, heirs would need to navigate the contractual relationship with the service provider.

In both cases, the estate planning process must ensure the heirs are aware of the digital assets and their access to them is assured. This may involve detailed instructions in a will or a separate document, possibly stored with a public notary.

Conclusion

In the end, whether your assets are in the form of art, collectibles, or digital holdings, the key is to plan ahead. Clear communication with your heirs, detailed documentation, understanding of tax implications, and expert advice can all help ensure your unconventional assets are appropriately managed after your passing.

Remember, as Morgan Stanley wisely notes, the economics of taste in art and the dynamics of digital assets are as nuanced as the assets themselves. By paying the same careful attention to these as to traditional assets, you can ensure your collection is an asset—not a liability—in your estate plan.

Sources:

Wealth Planning Principles for Art | Morgan Stanley
Art offers many intangible benefits, and it can have implications for your overall wealth. Here’s how to balance passion and prudence.
Why Your Art Collection Should be Part of Your Estate Planning
Art collections are an emotionally charged part of your estate. Here’s how to prepare for a smooth transfer to the next generation.
Are Collectibles a Good Investment? | BNY Mellon Wealth Management
Collectibles offer investors an opportunity to combine their passions with potential for financial return. Read on the unique risks involved before getting started.
How to include crypto assets in your succession plans
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