The world of collectibles – ranging from fine wine to classic automobiles – is a fascinating one, and also one drawing in considerable amounts of money from HNW individuals. Unsurprisingly, a panel discussion at FWR's recent family offices investment summit in Manhattan was a hit with the audience.

The following article, which follows the FWR Family Office Investment Summit in New York, describes the discussions of panelists in a session focusing on the transfer of luxury assets. 

The panelists: 

-- Brian Hughes, president – Eton Advisors (moderator); 
-- Colleen Boyle, CAP®, managing director, business development and philanthropic strategy – The Fine Art Group; 
-- John Castrucci, CPA®, national managing director, family office advisory services – RSM US LLP; and  
-- Thomas Ruggie, ChFC®, CFP®, founder and CEO – Destiny Family Office. 

This panel discussion, supported by real-time interaction with the audience throughout the 50-minute session, explored the world of luxury collectibles and “passion assets” – such as classic and luxury automobiles, works of art, sports memorabilia, coins, jewelry, watches, and rare wines and spirits. It considered why they are attracting attention as viable alternative investments in an asset class of their own.

The session opened with the moderator introducing the panelists, each a thought leader on the topic of collectibles and an expert in their respective areas within the broader collectibles marketplace. 

Topics for the session included the substantial growth of passion assets as an investment, the market for these assets, best practices for valuing, documenting, storing, securing, managing, and maintaining valuable collections, family implications, the need to incorporate collections in all aspects of wealth, tax, estate, succession, and philanthropic planning. The panel also looked at the importance and timing of conversations on the future of a collection with the family and with trusted advisors. 

The panel highlighted that while the market for collectibles has gotten bigger and the rewards can be financial, the appeal is often primarily experiential. 

The recent sale of the “called shot” jersey worn by New York Yankee slugger Babe Ruth in 1932 made headlines earlier this year when it sold for $24.1 million after a six-hour bidding war. The same jersey, sold for $940,000 when it was last put up at an auction in 2005.

Similarly, the first appearance of Superman in a 10 cent 1938 Action Comics book sold for $6 million this year and an acoustic guitar that John Lennon of the Beatles played when recording Help! in 1965 sold for $2.9 million after not having been seen or played in 50 years.

Wealthy individuals with a net worth of more than $50 million report a 25 per cent allocation to art, according to a 2024 survey by Art Basel and UBS. Just over one-third of family office are allocating capital to collectibles as part of their investment strategy, according to the Goldman Sachs Family Office Investment Insights Report.

The audience was asked, “Do you believe collectors understand the value of their collections?” Fewer than 10 per cent raised their hands. (In fact, according to UBS Investor Watch: The Value of Your Collection, 51 per cent of collectors have never had their collection appraised and 39 per cent cannot estimate the value of their collection.) The audience was also asked, “Do you believe most collectors do a good job of planning for and managing these valuable assets?” Again, fewer than 10 per cent raised their hands. (In fact, 66 per cent have never discussed their collection with an advisor.)

Other references and key statistics were presented to paint a detailed picture of the great complexity – both the challenges and opportunities that exist – for the collector at the intersection of their passion, investment, and legacy, as well as for trusted family office advisors seeking to add the greatest value to those they serve. 

One of the first considerations identified was having a clear understanding of where a person is and what he or she ideally wants in terms of their collection, to protect it, for themselves and their family. The panel talked about a powerful tool called the Collectibles Scorecard which helps collectors assess themselves and their collections in areas highlighted in the discussion including acquisition, valuation, documentation, tax planning, insurance, security, risk mitigation and estate planning. 

Many of these considerations benefit from being viewed through a broader lens. For example, there are many considerations specific to tax liabilities. Because valuations of artwork and collectibles may be highly subjective, items that may be invaluable from a sentimental perspective could be less valuable in the market and therefore to the IRS and vice versa. 

Certain questions arose: How does a collector truly know how much a piece is worth? What other considerations can affect income, gift, estate and direct taxes? What measures can be taken to remove part or all of a collection from the taxable estate? 

Unfortunately, collectors must also consider fraud and theft, for example whether each piece has been acquired from unimpeachable sources, and whether provenance or other documentation is in place? The panel stressed the need for collectors to educate themselves as much as possible, proceed with caution and obtain third-party verification from trusted sources for items they possess or want to buy.

And finally, attention was paid to exploring how trusted family office advisors who may not have the expertise to navigate this great complexity by themselves, can effectively serve the collector by knowing when – and how best – to position trusted third-party resources in front of the collector. This can apply in matters involving acquisition, valuation, protection, security, risk management, tax planning, and the transfer of the collection during the collector’s lifetime or at death through philanthropic means and succession planning.

Planning for the future of one’s artwork and collectibles is an important step in reducing taxes, fulfilling charitable missions that are important to you, preserving your legacy, and providing you and your family with greater peace of mind. 

Interested individuals should feel free to contact the panelists directly for more information on topics covered.