Destiny Family Office specializes in helping high-net-worth collectors understand, account for, and protect the financial might of their collections, both for themselves and their families. Here, we discuss the many challenges that heirs of high-net-worth collectors may face upon inheriting a collection.
If you have a valuable collection you’d like to include in your financial, tax and estate planning in an effort to prevent those challenges, contact our Destiny Family Office team today. And don’t forget to self-assess your planning to date by completing our Collectibles Scorecard.
What starts as a passion can materially impact family wealth for generations.
Most collectors begin collecting not with an eye towards financial gain but in service of their interests. However, through years of acquisitions, their collections become a bigger and bigger piece of their lives…and their balance sheets. As collections grow larger, it becomes irresponsible for collectors to ignore their financial impact. Just as we enlist professionals to assist with our traditional financial needs when our net worth grows, we should also consider pursuing tailored financial planning that encompasses and accounts for our growing collections.
For large collectors, financial planning that overlooks, excludes, or avoids collections is no planning at all. Fail to prepare, prepare to fail. Those collectors should engage family office professionals well versed in the unique challenges that collectible assets pose.
Not convinced? Consider the following reasons.
Collections can represent a significant portion of net worth.
Many collectors do not regularly track the value of their collections, or if they do, their estimates may not be particularly accurate. Instead, collectors often employ a recency bias, focusing mainly on their annual collectible spend or most recent acquisitions. But consistent acquisitions accumulate over time into collections of significant size, and many of those acquisitions grow in value to multiples of their original cost.
There are myriad examples of memorabilia multiplying in value:
- Babe Ruth’s “Called Shot” Jersey. In 2005, this fabled piece of baseball memorabilia sold for $940,000. Sold into a market clamoring for top-tier, game-worn sports assets in 2024, the jersey achieved a record sale price of $24.1 million, appreciating by 18% annually.
- 15-cent Z Grill stamp. PIMCO bond king Bill Gross purchased this grail stamp for $209,000 in 1998. When he sold his collection in 2024, the stamp sold for $2.8 million, having appreciated at 11% annually.
- Princess Diana’s Edelstein Evening Dress. In 1997, Princess Diana auctioned off a collection of her dresses at Christie’s to benefit charity. At that event, this particular dress sold for $25,300. As the late Princess’s iconic cultural relevance grew, so too did the value of the dress. It sold in 2024 for $910,000, appreciating at a rate of 14% annually. Other dresses from the 1997 event have achieved similar growth.
Failure to recognize any of those assets’ growth over time would mean a significant misunderstanding of total net worth, collection size as a portion of net worth, and insurable value. Similarly, anchoring to the entry cost would lead a collector to underestimate their collection’s size dramatically. Whether they realize it or not, many collectors have built collections that comprise a sizable portion of their net worth, particularly as many collectible categories have seen growth in valuations over the last 5-10 years.
When collections make up a more material portion of the balance sheet, their potential financial impact is significant. Most high-net-worth investors would not leave the fate of their multi-million dollar portfolio to a self-directed brokerage account, at least not without some form of assistance from an advisor on matters of portfolio management, taxation, or estate planning. Similarly, high-net-worth collectors should avoid keeping their collections in an entirely self-directed state as the stakes grow higher.
Collections deliver unique and often unpredictable financial performance.
While financial asset classes like equities and fixed income offer lengthy track records and a near-endless archive of relevant data to inform portfolio decisions, collectible markets are relatively immature in that regard. As a result, they are often inefficient markets, where liquidity is thin, values are volatile, and outcomes are uncertain. In most cases, collections are risk assets, where capital preservation is far from assured. If the allocation to collectibles is sizable, the assets’ risk profile should have significant implications for how a collector thinks about their balance sheet at large.
For instance, if someone owns a collection of assets that is sizable relative to their net worth and volatile in value, wouldn’t they want to account for those assets as they adjust the rest of their portfolio? Perhaps that sizable risk allocation would motivate them to increase their allocation to more stable asset classes that would serve to dampen volatility. The right professionals can help clients think through how to optimize their balance sheet and portfolio to arrive at an overall risk profile that is most comfortable for them. Simply ignoring a large and risky allocation, though, is not likely a prudent strategy.
It should be noted that the availability and use of data concerning the financial performance of collectible assets is improving. Thanks to lengthy track records of auction prices realized by the works of certain artists, fine art market participants have long adopted a more data-oriented approach. For instance, Masterworks – a company that securitizes artworks and offers them for fractional investment – produces a variety of data familiar to financial professionals, including sharpe ratios for artists and indices complete with return and volatility measures. Over time, this data will become more abundant and widely used, enabling financial professionals to serve collectors more effectively.
Many collectors (by not consulting with professionals well-versed in collections) and many advisors (by effectively ignoring collections altogether) remain eons away from that approach. Their first step collectively should be to recognize the size of their collections, their unique financial performance, and the corresponding need for greater attention.
Planning for transfers, dispositions, or estate matters with collections is complex.
Your collection’s personal meaning is both benefit and burden. Many collectors find that younger generations and potential heirs share little of the same passion. Unlike stocks, bonds, and cash, which are assets easily inherited with little operational risk, collectible assets may be extremely foreign to heirs. That being the case, leaving those assets to the next generation can be fraught with risk absent a comprehensive plan.
Estate planning considerations for collectors may include not only the selection of a beneficiary but also information and plans for how best to maximize or preserve the collection’s value. While a collector may have enjoyed their collection in isolation, adhering to that isolated approach until death risks a complete misunderstanding of what’s in the collection and its worth. At best, it means that heirs must identify the proper professionals to help them make sense of it. But why saddle them with that uncertain exploration at such a difficult time?
Instead, by engaging the appropriate professionals, collectors can make comprehensive plans that ensure their collections are a gift and not a burden. Alternatively, they can plan to dispose of their collections as efficiently as possible to streamline the process. Professionals can be similarly helpful in advising on charitable considerations relating to collections. Collectible assets can be terrific vehicles for philanthropic contribution, but there are pitfalls to avoid and ways to maximize impact which may necessitate the proper guidance. The same can be said of ownership structures while living.
Collections require unique attention relative to other financial assets.
Because most collectible assets are tangible, physical items, they demand certain attention that financial assets do not. For instance, their physical existence means they are vulnerable to damage or theft. As a result, collectors must properly store and insure their items to minimize the risk to their wealth. For sizable collections, these precautions can be costly. A well-versed family office team can guide collectors through properly protecting their collections, leveraging relationships with relevant providers and sharing best practices acquired through past experiences.
Those best practices may extend to choosing where and when to sell or buy items, obtaining appraisals for various purposes, and pursuing higher authentication standards. Ensuring an extensive collection is properly protected, documented, and organized is a serious undertaking requiring attention to myriad factors. That there’s so much to do is likely why many collectors fail to prepare adequately. By enlisting the assistance of financial professionals with experience serving collectors, they can reduce the scope of that burden, transforming the process from an overwhelming one-person job to a manageable piece of the financial planning process.
For large collectors, the size of their collections is simply too significant to ignore from a financial perspective. While financial growth can feel like a bonus or a cherry on top of an endeavor pursued purely from personal passion, it heightens the extent to which collectors should carefully consider their collection’s impact on their balance sheet and on future generations. What feels like a bonus should not be squandered due to a reticence to properly prepare – whether from complacency, deficient capacity, or sheer overwhelm.
Fortunately, collectors don’t need to endure this undertaking alone. On the contrary, they should seek assistance from experienced professionals who offer holistic financial planning and investment advisory services that appropriately consider the nuances, strengths, weaknesses, and challenges of collections.
Destiny Family Office works with ultra-high-net-worth collectors, offering services tailored to their investments, families, and passion assets. By understanding what’s most important to you, we can help you navigate complexity, simplify your life, and achieve peace of mind.
If you have a valuable collection you’d like to include in your financial, tax and estate planning, contact our Destiny Family Office team today. And don’t forget to self-assess your planning to date by completing our Collectibles Scorecard.
