Make sure your collection is covered by your Will
Whether it is art, pottery, classic cars or vintage farm machinery, a collection can be a valuable asset.
Many people build up both important and valuable collections during their lifetime, so deciding what happens to it after you pass away is important.
Leaving a collection as a whole can be difficult if Inheritance tax (IHT) isn’t planned for correctly, and also if it is valuable because of its need for ongoing management and possible maintenance and storage.
Discussing plans with loved ones is important as they might not want the responsibility of the collection. It might be hard to find someone within the family who loves and cherishes the collection as much as you do. Some people choose to divide a collection in their Will whilst others may approach museums and other collectors to see if they would be interested in keeping it together.
Think about how you secure, move, insure and store your collection after your death and leave specific instructions for your executors.
A collection of firearms for example would need to be moved and held by someone with an appropriate firearms licence and the secure storage to keep the guns.
If you have a collection then it will form a part of your estate and it will need to be professionally valued. This could mean your estate attracts IHT of 40%, so planning ahead is important otherwise beneficiaries will be left with a large tax bill.
If the collection could be sold or gifted to the nation, then this can be useful in reducing IHT. For example collections such as of art can be transferred under the Acceptance in Lieu scheme, which can offset IHT liabilities.
Dividing it up
The emotional attachment to certain items should not be underestimated and can be the cause of many a fall out, so leaving clear instructions if a collection is to be divided up and who gets what is important. It might be worth circulating a list and asking your beneficiaries to indicate which pieces they would like, so that you can make a final decision.
You may choose to divide the collection up according to value, so one beneficiary might get a larger share whilst the others get fewer, but more expensive items. Again, explaining your decision making can help to prevent a fall out. The value of individual items may vary over time, so allowing some flexibility within this approach might be needed.
Are all the items in the collection in working order? Speaking to a car mechanic recently who specialises in classic cars was enlightening as with a small number of repairs, a car’s value might be greatly increased. He regularly works with estate executors to help them realise a greater value for cars which may have been garaged or off the road at the time of the owner’s death.
Leaving a collection in trust
If you would like to leave your collection to a future generation then you could set up a Discretionary Trust. One benefit of the Trust is the transfer of ownership of your collection to the Trust itself and an assurance that the trustees would care for the collection with no single beneficiary having any right to it. It may also be possible to generate an income from the collection if for example it was loaned to a museum and put on display. Individual items from the collection could also be allocated to certain beneficiaries when the trustees decide, such as to help provide a deposit for a first home, pay for education etc. There will be tax implications to setting up a Discretionary Trust so specific tax advice should be sought.