As an insurance professional, you can be an indispensable member of the advisory team of an art or antiques collector. An art succession planner, in many situations, cannot properly serve their clients without your involvement. If your clientele includes high-net-worth individuals, most of whom collect something, you have probably unintentionally left revenue opportunities on the table. If you are willing to take some time to understand how art and antiques succession planning can impact your book of business, you will discover sales opportunities that will positively affect your personal income in the next 60 to 90 days.
Art succession planning is an issue that estate planning attorneys, CPAs, and financial planners often overlook. It's the process of systematically analyzing a collection and mapping out the ultimate disposition of each piece in a way that optimizes the value of the collection and meets the collector's objectives. It generally centers on bequests, trusts, gifts, donations, and wealth replacement strategies. It also frequently involves liquidating and gifting some items in the collection in order to fund other strategic objectives and can sometimes involve trusts and other more creative techniques, such as foundations and partnerships.
The advisory community's failure to include art and antiques assets in the planning process results from several shortfalls on both sides of the issue. Collectors are often reluctant to discuss their collections for a variety of reasons:
o They don't view their items as assets.
o They don't really want anyone to know they have the items.
o They feel that they have things all taken care of because they have labeled everything designating which items will go to which people.
The advisory community also fails to ask about these pieces (such as a collection of vintage teapots or antique coins) because they don't really understand them and rarely view them as assets. Traditionally, art, antiques, and collectibles are just lumped into the tangible personal property line item on the client intake questionnaire -- a faulty practice.
Life insurance agents have an enormous opportunity to generate wealth if they can raise the awareness of the collector and the other members of the client's advisory team to initiate a more thoughtful approach to the disposition of art and antiques assets.
Opportunity #1 - Using an ILIT as a wealth replacement strategy
Attorneys use irrevocable life insurance trusts (ILITs) for several reasons in the planning process, but the underlying consideration when using this strategy is almost always wealth replacement. Consider this scenario: An art collector wishes to leave his collection of rare books and antique scientific equipment to his daughter and his contemporary art collection to his son. If the collector leaves these items to his children in his will, the kids will get clobbered with estate taxes and will probably have to liquidate most of the two collections in order to pay the IRS.
Alternatively, if the collector sets up an ILIT, his intentions can be fully realized, the collections preserved, and the taxes paid. Most importantly, though, the strategy only works if a life insurance policy on the collector's life (or second-to-die) is purchased from you.
Here's how it works: Usually, collectors possess some items that are of lesser quality (often acquired early in the client's collecting life), are duplicates, or have for whatever reason lost their allure for the collector. These insignificant pieces can be sold off, raising cash to pay the premiums on the life policy. The policy is purchased by the trust, and the kids are named as the beneficiaries. At the client's death, the policy proceeds pass tax-free to the kids, and they create a source of funds to pay the tax liability. The kids are happy because they get the collections. The IRS is happy. And you are happy because you got the sale.
Opportunity #2 - Funding a museum endowment with a life insurance policy
Collectors with significant pieces will sometimes work with museum curators to structure a gift of a worthy piece. The gift can be structured outright, fractionally, or promised so that the mu-seum does not actually take possession of the piece until a later date (often the collector's death). The collector is entitled to a charitable contribution when the gift is made and generally is recognized in some way in the museum, resulting in an art legacy for the collector.
Quite often, museums will accept gifts only when they come with a supporting endowment. An ideal way to fund the endowment is with a life insurance policy naming the museum as the beneficiary. Here's what you need to do: The museum (a charitable organization) needs to be named the owner and beneficiary of the policy. If this is done correctly, the premium payments become fully deductible to your client. Cash can be generated to fund the premiums by borrowing against better pieces or selling off lesser ones.
All you need to do is raise your own awareness of the strategies that art and antiques collectors can utilize to better accomplish their own objectives. Then, get the other members of the advisory team on board by suggesting solutions to issues they have generally not thought about. Lawyers, financial planners, and accountants have a fiduciary duty to preserve the value of their clients' assets. If they are not planning for unique assets such as art and antiques when they are planning their clients' estates and are following the conventional wisdom of a post-mortem auction, they are squandering the value of these assets.
Your job is to show up with the solution. You can show the other members of the advisory team how to preserve the value of the assets, make a charitable contribution, create an art legacy, and give more to the kids.
Michael Mendelsohn is founder and president of Briddge Art Strategies Ltd., an art-succession planning firm. Mr. Mendelsohn's inheritance planning strategies for art and antiques assets have been featured in Trusts and Estates magazine, and he also has a regular column in Antiques & Fine Art magazine. For more information, visit www.briddgeartstrategies.com.
