After
television puppeteer Morey Bunin died in 1997 at age 86, his three children
donated his puppets and scripts to the Museum of the Moving Image in Astoria,
N.Y. But they consigned more than 200 reels of film that captured the antics of
such characters as Foodini, Pinhead, and The Schnozz to the basement, thinking
they had only sentimental value. It wasn't until they read an article in 2001
about the disappearance of many shows from the early days of television that
they realized they were sitting on a treasure trove. "When we saw the article,
the light bulb went off," says Erica Bunin, the puppeteer's daughter.
The siblings ultimately sought the help of Laurence C. Zale Associates, a New
York art advisory service, which devised a strategy for them to preserve the
films for posterity and make out financially. After an appraiser valued the
reels at $2.3 million, the family donated many of them to the Museum of Modern
Art, the Library of Congress, the Museum of Television & Radio, and the UCLA
Film & Television Archive. By doing so, they pocketed $1.6 million in tax
deductions while boosting the pedigree of the remaining reels, which are now up
for sale. With an idiosyncratic collection like this, "you have to be pretty
creative," says Laurence Zale.
If you're a collector--and one-third of people with net worths of more than $10
million are, by one estimate--you need to do more than keep your valuables
dusted or stored in climate-controlled rooms. Without careful planning, your
heirs may face a substantial estate tax bill--whether they decide to keep the
stuff or not. And if you want to unload your treasures while you're alive, the
long-term capital-gains rate on collectibles is 28%. (The rate on stock gains is
just 15%.) If you have a collection you love, here's what you need to do:
FACE FACTS. Don't delude yourself into thinking your kids will
cherish what you spent years accumulating. When Michael Mendelsohn, president of
Briddge Art Strategies Ltd. in Purchase, N.Y., asked his daughter which five
pieces from his art collection she would most like to inherit, he was impressed
that the then-19-year-old selected five of the most important works.
Mendelsohn was less pleased when he asked about his daughter's reasoning. She
wanted to make as much money as possible when she sold them. The rejection can
sting, but it's better to know your loved ones' true feelings about your
collection so you can make the best decisions.
AVOID A FIRE SALE. If you don't develop a succession plan, your
collection could ultimately be carved up at an auction or disappear into eBay's
(EBAY
) maw. "A hastily arranged auction sale can lose up to 70% of the value of the
collection," says Mendelsohn, who wrote the book Life is Short, Art is Long:
Maximizing Estate Planning Strategies for Collectors of Art, Antiques and
Collectibles (Wealth Management Press, $24.95).
Norma Canelas-Roth and William Roth of Winter Haven, Fla., have been donating
their artwork to museums for two decades. But they have seen other collections
decimated because the owners never bothered to plan. At the moment, Canelas-Roth,
an art historian, is particularly upset about the fate of a spectacular Chinese
snuffbox collection that her close friends' children are trying to dump for
quick cash. "The collection should go to a museum, but now it will be a
bargain-basement sale. It's very, very sad," she says. With some philanthropic
planning, she notes, the children could have received "far more money" than they
will now. Her friends could have pursued one of several strategies, including
donating the snuffboxes to charity and using the tax savings to buy life
insurance that would have provided more money than the sale of the collection.
DON'T LOOK FOR ONE SOLUTION. Many collectors gravitate to
museums and universities because the tax proposition looks unbeatable. When
making gifts of art to these "related-use" charities, the donor is entitled to
deduct the works' fair-market value.
In cases where the gap between the cost basis and the current value is not
large, you could give it to almost any institution you choose. That's because if
you donate art to a charity that's not art-related, you receive a deduction
based only on what you paid for the work. If you're taking the nonrelated route,
consider giving the art to one of the donor-advised funds run by community
foundations. In that case, the work will be sold and you will be able to
distribute the proceeds among many worthy causes.
CREATE A CATALOG. This isn't for vanity. "It's wise to have a catalog
prepared well in advance of death to make sure the provenance is established and
the history of the collection is included," says Jenny McCall, chairman of the
estates, trusts, and tax planning group at Pillsbury Winthrop Shaw Pittman, a
law firm in New York and Silicon Valley. Producing this glossy document with
color photographs, collectors' recollections, and artist biographies can boost
the value of the collection.
Lending art to museums may also enhance value. But it can put the works at risk.
The Roths have had to restore prized pieces after dispatching them around the
world. A valuable contemporary painting got wet sitting in a wooden crate at a
German airport, sculptures have been damaged, and African masks came back from
an 11-city tour with beads missing.
DON'T BE SNEAKY. Some collectors tell their children in advance
who can take what valuables. When the parents die, the children carry their
bequests out the door and hope the Internal Revenue Service never catches on.
Mendelsohn recalls a family that tried to avoid estate taxes by keeping three
magnificent pieces of antique furniture under wraps. The two daughters sold
their pieces to a New York dealer and each pocketed seven figures. But when the
son tried to sell his through the same dealer, he learned it was a fake. The
brother is now trying to wheedle a share of what his sisters got for their
pieces. If he files suit against his siblings, there's a good chance the IRS
will learn of the dodge and audit the estate.
By Lynn O'Shaughnessy
Copyright 2000- 2007 by The
McGraw-Hill Companies Inc.
All rights reserved.
