Estate Planning – Finding A Home For Your Collection – Charitiable Donation, Trusts

This is a transcript of a presentation delivered by Certified Manuscript Appraiser Brian Kathenes, May 23, 2003 at the Library of Congress, Manuscript Society Annual Meeting.

Moderator— Steve Carson: with: Chris Coover, Christie’s auction House
and Dr. James Hutson, Director Library of Congress

Presenter:

Brian Kathenes, ISA CAPP

Managing Partner

National Appraisal Consultants

Hope, NJ

It is an honor to speak here at this wonderful institution and before my friends and colleagues of The Manuscript Society.

Thank you for allowing me to be a part of the program.

“Finding a home for your collection.” — an interesting phrase.

Depending upon the “home” you are considering for your collection, the services of a professional appraiser may be beneficial, or even required.

By the end of my short presentation, you will have a better idea of:

· how an appraiser can help you find your collection’s home

· when you might need an appraiser

· how select the right appraiser.

And, interestingly enough, you’ll probably know more about the appraisal process than most people who call themselves appraisers.

Now, before you even consider retaining the services of an appraiser you need to know one important fact.

Anyone can call himself or herself an appraiser. There are no laws or licensing requirements in any US state pertaining to personal property appraisers. That may seem unusual, especially with the antiques road show craze, but it’s true. It seems that anyone who ever bought or sold an antique or a manuscript is an appraiser.

There are dozens of recent incidents, and court cases, of unqualified people that got themselves and their clients into big trouble by calling themselves appraisers.
You’ve probably read about a few of them in Manuscripts News. We do a great deal of litigation support work in appraisal related law suits and you’d be amazed at what our research reveals.

So for starters, let’s cover what an appraisal is and what it isn’t.

An appraisal is a formal, written document, prepared by a qualified appraiser. The report contains an unbiased, opinion of value along with the documentation to support that value conclusion.

Every appraisal has a purpose and an intended use. The use is the reason the appraisal is being conducted. Perhaps the use for insurance coverage, charitable contribution, equitable distribution, estate planning or pending sale.

The purpose is the value being provided: Retail replacement value, fair market value, liquidation value. We’ll talk more about values later.

Now, before you consider an appraisal, consider your needs.

· What do you want to do with your collection? Sell it, keep it, gift it? donate it?

· Would knowing its value help you in your decision?

· Does anyone else need to know the collection’s value? Family – distribution, IRS tax deduction?

Let’s look at a few “homes” for your collection.

If you wish to sell your collection (I guess that means the new home of your collection will be someone else’s home). You have several options.

You can sell it to a dealer. In this case you don’t need an appraisal because the dealer will tell you what he or she is willing to pay. (Now if your not sure it’s a fair offer, an appraisal might help), but if you select a reputable dealer, you’ll get a fair offer.

You can consign it to auction. Again you don’t need an appraisal. The auction representative will provide with a pre-auction estimate and associated fees as part of the service.

People call us all the time and tell us they want to sell their collection at auction and need an appraisal. As much as we’d like to relieve them of their money and do the appraisal, we tell if that’s what they wish to do, then they don’t need an appraisal. The auction rep will provide them with all the information they need.

You can consign it to an agent for sale – same story. The agent provides an agreed-upon selling price and the fees associated with the transaction.

Naturally, you need to have a great deal of trust in the dealers, agents and auction representatives, as well as their market knowledge.

You can shop a variety of auction houses, dealers and agents to get the best offer, pre-auction estimate and terms.

If you don’t have the time or the desire to shop your collection, an appraiser can provide you with the data you need to better understand markets and optimal methods of sale.

If you are planning to sell your collection, I believe there are specific advantages to each method: dealer, auction or agent. But that’s beyond the scope of today’s program.

Another “home” for your collection can be a gift to family or friends. You can gift all or a portion of your collection. You can equitably distribute the collection among several parties or give it to one person. You can gift the collection all at once or over a period of time. Each of these decisions may require an appraisal, in order to equitably distribute the assets. You may also need the appraised value in order to stay below the maximum non-taxable gift amount.

Your collection can find a home in various family trusts, which can be used to mitigate tax liability in estate planning situations. An appraisal is almost always required in this scenario.

You can also donate your collection. (I’ll bet Dr. Hutson was wondering if when I was going to mention that “home.”) Again, like with a gift, you can donate all of it, or a portion of the collection. There may be tax advantages to donating an entire collection in one charitable contribution transaction, or over a period of time.

In charitable donations, an appraisal is almost always required in order to establish fair market value for potential tax deductions.

Before, I mentioned the appraisal terms purpose and intended use. In a charitable contribution, the purpose of the appraisal is to report Fair Market Value. FMV is a legal definition derived from Treasury regulations and revenue procedures as: the price at which the property would change hands between a willing buyer and willing seller, neither being under any compulsion to buy or sell and both having adequate time and reasonable knowledge of relevant facts.

Appraisers identify the most common market and then research value.

You see appraisers don’t really determine value — Appraisers report value. The market determines value. Appraisers research the appropriate market, then report their opinion of value in a qualified report for their client. Most of the appraiser’s value conclusions however are reported as a value determinations for legal reasons.

They back up their opinion with documented research, which is contained in the report.

Professional appraisal societies, the Uniform Standards of Professional Appraisal Practice, and the IRS dictate what information is required in an appraisal report.

Typically, the first 9 to 12 pages of a charitable contribution report contain required information on the appraisal process, market research, methodology used, markets selected and the appraiser’s qualifications. The balance of the report is the detailed description of the items being donated and the value conclusions.

These reports are quite complex and always include detailed photographs, all of which is required by the IRS. An IRS 8283 form is also signed by the appraiser, and completed by the donor.

Sometimes our firm, National Appraisal Consultants, is retained to provide preliminary research in order to help the donor establish how the collection should be donated.

All in all, the donor works with the institution, the appraiser, and usually a tax professional to ensure the donation becomes a win/win for all parties involved.

If your collection needs protection until it finds a new home, an insurance appraisal may help. As you know, manuscripts are not typically covered under the standard home owner’s policy. They are considered by most insurance companies to be fine art and must be scheduled.

An insurance appraisal properly identifies the collection and establishes a retail replacement value. The report provides the basis for coverage. The insurance coverage can extend to shipping, storage and a loan of the collection, should its new home be out of your home.

So, there are several common applications for appraisals. To be sure there are others, but I think these are the most common uses and pertain to today’s topic.

Now if you do decide you might wish to consult an appraiser, I have a few thoughts.

1. Appraising is not an art. It is a science. There is formal training, testing and certification available through a variety of organizations. Anyone that holds themselves out as an appraiser should have been trained, tested, and certified through one of three professional personal property appraisal organizations. Personal property refers to anything that is not real estate.

There is the AAA — Appraisers Association of America, based in NY
The ASA — American Society of Appraisers, based in DC, the NAJA, National Association of Jewelry Appraisers in New York, And the ISA — International Society of Appraisers, headquartered in Seattle. The ISA is the largest professional organization of personal property appraisers. I am a Certified Member of the ISA with a Specialist Certification in Autographs Manuscripts and Historical Documents, and the Chairman of the ISA Appraisal Ethics Committee.

Check the qualifications of all potential appraisers. And seek out appraisers that have the highest level of certification and training. Don’t let anyone tell you there’s no place to learn to be a certified appraiser

2. Do not use an appraiser that has an interest in your collection. Professional appraisers are unbiased and will not offer to buy anything they appraise and they don’t appraise anything they intend to buy. You can’t wear two hats in this business and not get into trouble. Remember the Pickett papers.

3. Do not accept any appraisal fee that is based upon a percentage of the value of the items being appraised. It is unethical for an appraiser to base fees upon a percentage of value reported. Appraisers must always be and remain unbiased.

4. When making a charitable contribution, be certain the items have a related use. The IRS frowns upon allowing tax deductions for items that are unrelated to the purpose of the institution. Donating a cow to the Gemological Society of America is probably an unrelated use.

One quick appraisal story:

We talked about appraisers reporting value not determining value. Well one of our gems and jewelry appraisers was retained as an expert in a California court case involving a jewelry store theft. (story)

Fill-ins: Pre- Colombian art story: Three approaches : comparable sales, income, reproduction cost. Use moon rock Value and date. Indy 500 tkts.

Now you know perhaps a bit more about how an appraisal can help you find the best home for your collection.

If I can ever be of assistance don’t hesitate to call.

Thanks!