Careful estate planning can reduce chances of strife developing in the family. There is a lot of assets that are going to change hands, as the baby boomers age and pass on. One of the key things to consider is the careful consideration needed to successfully pass on “hard” assets in comparison to money, according to Kiplinger in “Estate Planning Answers for ‘Hard’ Assets Like Art, Heirlooms.”
It’s one thing to transfer stocks, bonds, cash, and other assets that are generally considered “liquid.” However, it is different when the assets are “hard,” like real estate, art, and jewelry. Most families don’t keep a comprehensive inventory of these assets, their value may be unknown, and chances are good family members have different ideas regarding how they want to have them distributed.
If all of this is not enough, what about the difficulty of talking about what the current owner would like to see happen to the asset. So, what happens? In many cases, these hard assets end up being overlooked and sometimes undervalued.
A better solution would be to create a formal plan that begins with the owners, the family advisors and depending on the nature of the asset, professional appraisers.
Here are three key questions to keep in mind:
What’s it worth? You need to establish any asset’s fair market value. That number needs to be appraised by an objective and properly credentialed appraiser, who is knowledgeable in their area. For instance, a jewelry collection that has grown from its original value when first acquired, may have doubled in value over the decades. Select an appraiser who is certified by an accredited organization.
Who wants what? You may be emotionally vested in an heirloom that came to you from your great grandfather, but your children may be more attached to the family home. If more than one sibling wants an asset, you’ll need to figure out a way to share it. If one child insists on keeping the family vacation home, for instance, but the other two aren’t interested, you might need to set up an equitable buyout solution.
If the asset is artwork or a collectible, remember that these items are often cyclical in popularity and so is their value. One individual who inherited a collection from his parents, knew that the artist was a family friend, but had no idea of the value, if any, of the collection. His timing was sheer luck—he wanted to sell, exactly when this artist was popular. Three years later, he may not have been so well rewarded.
Can it be passed on to the next generation? An estate planning attorney will be able to assist you with the best way to pass on illiquid assets. They may be put into a trust, a family partnership or an LLC, and the transfer of ownership can be done in a tax-efficient way. If you really don’t think your heirs appreciate the asset, then you can sell it for a fair price, pay the necessary taxes and gift the tax.
Any of our estate planning attorneys would be happy to advise you on creating an estate plan that fits your unique circumstances and may include some “hard” assets.