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An Estate Plan to Protect an Art Collection

(Wall Street Journal, February 2014) The client’s collection of Asian art represented 50 years of travel and collecting with her late husband. At 80 years old, she wanted to figure out the best way to pass the $250,000 collection to her two middle-aged daughters.

Mona“The collection represented an important period in her life and she was worried about it staying together after she died,” says Mark Van Mourick, president of Optivest, Inc., which manages $202 million for 70 families in Dana Point, Calif.

Mr. Van Mourick asked if she had spoken with her children about her wishes for the art. The answer, he discovered, was no. He knew from experience that it’s important to have a plan in place for valuable heirlooms to prevent disputes among heirs and ensure a client’s wishes are respected after death.

His first step was to have his client work with an attorney to put the collection into an existing revocable family trust, which named the woman’s daughters as beneficiaries. Placing the collection in the trust meant the daughters would avoid probate proceedings, as well as any estate-tax issues that might crop up. The trust also allowed the client to more easily specify her wishes for the future of her art collection.

The total value of the trust, which also included a mix of stocks, bonds and cash, was less than the $10.4 million lifetime gift-tax exemption. That meant the daughters wouldn’t owe estate tax on the art, but if they sell pieces, they will still owe capital-gains tax on the appreciated value of the collection at the time of their mother’s death.

Next, the adviser suggested that his client have a conversation with her daughters about managing the art collection after her death. It quickly became apparent that the daughters were not interested in caring for the collection and would prefer to sell the pieces to help pay for their own retirements.

“This came as a disappointment to the client,” says Mr. Van Mourick, “But once we had that information we could figure out what the next best thing for the collection was.”

The client agreed that her collection could be sold after her death, but specified in the trust that she preferred the collection be sold in its entirety to one collector. If that were to prove impossible, the children would have the option to keep any pieces they wished and sell the remaining pieces individually.

“You can put language in the trust document about disposition just like you would any other property,” he says.

The daughters agreed to the legacy plan and were relieved to have addressed the issue of their mother’s art collection before her death. The family was also happy to learn from an appraiser that they would likely find a buyer who wanted to keep the entire collection intact.

Mr. Van Mourick says that for elderly clients, addressing concerns about estate plans can be a sensitive subject, but it’s an important conversation to have.

“Ask clients what’s important to them and keep asking questions until you find what’s really keeping them up,” he says. “That way, you can make at plan that will allow the client to rest well at night.”