A dilemma of the ultrawealthy: Who inherits the wine and art collections?

By Beth Pinsker

Less than half of those worth more than $3 million have basic estate plans for their complicated assets

You might think that with a certain amount of assets comes wise counsel. But a Bank of America Private Bank survey of 1,000 adults with over $3 million in investable assets found that only 48% of them had the three most basic planning documents in place: a will, a healthcare proxy and power of attorney.

"That shocked me," said Jen Galvagna, head of trust, estates and tax for the bank, who worked on the annual survey of wealthy Americans. She was further surprised that, of the wealthy people who did have an estate plan in place, only 27% said they were familiar with the details.

The amount of zeroes involved in an estate's value does not matter to the legal system. No matter who you are, if you don't do even the most basic estate planning, your family will end up in probate court sorting out your affairs. The power of attorney and healthcare proxy cover financial and medical decision making while you're alive, while wills and trusts cover what happens after you die.

But while almost half is a better participation rate than the consistent national average of around 30% of Americans having a will, it's still very low considering how difficult it could be to deal with a large estate that might have all sorts of complicated assets to distribute. Cash in a brokerage account is relatively easy, especially if the deceased owner made proper beneficiary designations. On the other hand, an unappraised piece of art or a carefully curated sneaker collection could be a major headache.

These days, you're likely to find some valuable stuff lurking in the closets of the ultrawealthy. The Bank of America study found that 72% of those between 21 and 43 did not think stocks or bonds were good enough to achieve above-average returns. Instead, some 94% of Gen Z and millennials said they were interested in alternative investments, with real estate, crypto and other digital assets leading the pack.

These younger generations were twice as likely as those older than 44 to invest in tangible assets, which economist Joe Roseman nicknamed the SWAG assets back in 2011 - silver, wine, art and gold. That asset group also includes things like sneakers, handbags, watches and sports cards.

The goal with SWAG-type assets is to buy and hold in order to let the value appreciate.

Source: Bank of America Private Bank

"It was most definitely a multidecade philosophy," Roseman said. He recommended weighting around 20% of a portfolio to SWAG assets originally, with a view toward a very long-term investment horizon, and he still does. "My thoughts are driven by long-term economic trends," he added.

Multigenerational worries

The longest time horizon of an individual investor is obviously that person's natural lifetime, but many think beyond that to multigenerational strategies. They imagine their wine or art collection will be maintained by their children and grandchildren long into the future.

In Galvagna's experience in the trust department of a major financial institution, though, that doesn't often happen. As her survey showed, most of the younger generation is not interested in inheriting collections from the previous generation, even as they collect their own items. A clear majority of all the generations foresees major family strain over the future inheritance of these items.

"What clients think will be the most desirable asset never is. You might have incredible wine collections, and parents think everyone will fight over it, and, in reality, nobody wants it," Galvagna said. "The younger generation is looking at things differently."

When faced with this reality, many collectors stick their heads in the sand and do no planning, but it forces some to take a hard look at what they are doing. Tom Ruggie, a certified financial planner and an avid sports-memorabilia collector, realized he had a problem recently when he went to update his estate plan. Nobody in his family had the interest or understanding to take on his collection after his death.

To deal with the issue, Ruggie created a spreadsheet of his assets that meticulously documented their origin, value and where they could be sold eventually. For his many collector clients and other acquaintances in the collecting world, he took this as a base and developed a 10-point scorecard for keeping track of the life cycle of collectibles. It includes items like family awareness of the items, security, insurance protection and estate planning.

Some people might be disappointed to find that nobody in their family wants their stuff, but knowing this didn't sour Ruggie's drive to collect. "I've always known that my kids aren't interested, but it's something I've been passionate about since I was 7 or 8 years old," he said. "I'd rather my kids not keep the collection if they're not interested and let them enjoy the financial benefits of it, and let somebody else who does have a passion hold those assets," he said of his sports memorabilia.

Liquidating a collection is not the only option. Giving highly appreciated tangible assets to charity is another option, especially if they are of historical or artistic value. That also takes some planning, because charitable bequests don't happen without estate planning.

Galvagna once helped a client who had an antique-furniture collection. "Nobody in the family wanted it. Nobody could accommodate the size of it and the formality of it," she said. "You can donate things like that to charity or museums."

So the pitch that anyone with a collection needs to hear is this: Your wine needs an estate plan, because it's not going to drink itself.

Got a question about investing, how it fits into your overall financial plan and what strategies can help you make the most out of your money? You can write to me at beth.pinsker@marketwatch.com. Please put "Fix My Portfolio" in the subject line. You can also join the Retirement conversation in our Facebook community: Retire Better with MarketWatch.

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