S2, E4: Donating complex assets: Passion assets

This is the fourth of six episodes in our second Philanthropic Insights series that offers advisors everything they need to know about making the most with gifts of complex assets. Throughout this series, we will discuss the various areas of complex assets such as real estate, business interest, passion assets, alternative investments, and qualified appraisals – and we will bring in top experts in these fields. 

In this episode, Colleen Boyle, Managing Director at The Fine Art Group, shares insights on passion assets. Colleen shares 20+ years of expertise in art and finance. As a Chartered Advisor in Philanthropy, she guides clients on passion asset donations, offering insights into art valuation, legal analysis, and strategic monetization for charitable causes.

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Transcript

Kim Ledger:

Welcome to Ren's Philanthropic Insights video podcast series to help financial advisors make the most of their client's charitable giving. I'm your host, Kim Ledger, Ren's VP of Complex Assets, and this is my co-host, Katie Collin, a fellow expert on complex assets. Katie is the complex gift and grant director here at Ren. In this series, we share everything you need to know about making the most of gifts with complex assets.

Throughout the series, we're discussing multiple areas of complex assets such as real estate, business interests, passion assets, alternative investments, and qualified appraisals, and we are bringing in the top experts in these fields. In today's episode, Colleen Boyle, managing director at The Fine Art Group, will be sharing her 20 plus years of expertise in art and finance with us.

As a chartered advisor in philanthropy, she guides clients on passion asset donations such as art, jewelry and more, offering insights into our valuation, legal analysis, and strategic monetization for charitable causes. Before we get to Colleen, I'd like to talk with Katie for a moment. I mean, we've talked about a lot of different things over the last few days, but this one, it has a special place in your heart, doesn't it?

Katie Collin:

It really does. So Kim, when I was an undergrad, I had a goal and a dream of working in a museum one day. So my field of study was art history. It has been amazing to have the career that I've had and get to marry this love of law and charitable giving, also with working through gifts of art and other passion assets. I'm more than delighted to have Colleen with us today and have this experience.

Kim Ledger:

Working with her is great. So yeah, welcome, Colleen.

Colleen Boyle:

Thank you. Kim and Katie, thank you so much for inviting me to join your podcast today.

Kim Ledger:

We're so happy to have you. So first question I guess we should start with is what is a passion asset?

Colleen Boyle:

Yes. Passion assets can really vary. Oftentimes people are thinking of art because that tends to be a very valuable or can be a very valuable asset and can be part of the planning process impacting the financial portfolio. But what we find is clients have a lot of different types of interests and passions that lead to different types of collecting strategies. And some of the types of assets that we see in addition to art include jewelry, luxury, watches, handbags.

We look at a lot of coin collections. We have clients that collect books and manuscripts. They might have a passion for cars, or they might have a passion for sports memorabilia, particularly sports cards. So we see a wide variety of asset types really contingent on the interest of the collector and what their passion might be.

Kim Ledger:

We all always think of art first and foremost. So why do you think some of these other assets are often overlooked as people think about making those contributions?

Colleen Boyle:

Well, in all honesty, Kim, I actually think oftentimes most of these assets tend to be overlooked from the standpoint of planning adequately and also thinking of these assets as an opportunity for philanthropic impact. If you think about why people collect certain types of objects, they collect them because they enjoy the experience. So for example, for an individual who might be a wine collector, they enjoy going to wine tastings, traveling, learning about the different types of vineyards.

What makes one bottle of wine more expensive than another? There are all different factors. The same can be said for the art space. People like to go to the art fairs and to go to galleries and to talk to the artists and to learn more about what motivates the artists and then what is driving that art market. So these types of assets tend to be experiential and they also tend to be enjoyable. So there's emotion tied to these asset types, and so therefore clients are living with assets.

If they're car collectors, they might be driving their assets. And they're just not always thinking of these assets in the same manner as they might think of their stock or bond portfolio or their real estate or other types of financial investments. So oftentimes they're overlooked from the standpoint of planning for these assets and more importantly, using these assets as a philanthropic tool.

Kim Ledger:

You talked about all the emotion that's wrapped up in this. So what if you're the kid of someone who's been collecting all of this? You're that next generation. I say kid, it could be 60 years old. You've inherited your parents' passion. Now what?

Colleen Boyle:

So that is the biggest challenge right now that we are finding with multi-generational families. So the first thing that you point out is the fact that there are heirs. Not everybody is in a situation where there are heirs, but if that is the case, we do always recommend to have family conversations around these assets. Because the matriarch and patriarch may have been very, very passionate about collecting the art or collecting the books or collecting the luxury watches, but the heirs may not necessarily share that same passion or interest.

And the one thing to keep in mind with any type of collection, there is cost involved with maintaining collections. There's storage issues. So depending on the size of the collections, I mean, for example, clients might have 3,000 bottles of wine. Do the heirs have that type of space to store wine? And if not, then they're going to incur a cost. We often find too, if the heirs are not as passionate about the assets, they don't always know how to maintain the assets, and that can impact the value.

If art, jewelry, wine, other types of asset classes aren't maintained appropriately, condition factors can occur, which can directly impact negatively the value of those assets. But the other side to the equation is for those individuals that may not have heirs, but might have really significant collections, what are the options that they can consider? And oftentimes that's when we see really strong conversations, in depth conversations around philanthropic strategy and how to best transition a collection of passion into charitable impact.

Kim Ledger:

We talked about those with heirs. What if someone doesn't have heirs? What are some options there?

Colleen Boyle:

Yeah, so there's a lot of options. Again, it depends on really the intent of the collector. Because then what you're really talking about is creating a legacy. If you think about the time and effort that people allocate towards building collections, they're really passionate. They're really passionate about these assets, and they're also really knowledgeable. And so part of what we're finding in the planning process is if there are no heirs, and even if there are heirs, this whole idea of using these types of passion assets to create a legacy.

What is it that the collector wants to leave behind from the standpoint of not just the asset itself, but are they thinking of donating these assets directly to specific institutions? Are they thinking about supporting specific nonprofits? And how do they go about doing that? What type of strategy do they need to execute? What type of vehicles do they need to maybe create and discuss during their lifetime to make sure that their wishes are upheld?

So we see a lot of conversations with collectors, but also collectors and their multi-generational family members really around legacy. And it's an honor too. Because at the end of the day, oftentimes these collectors do spend a lot of time and are very knowledgeable about the assets that they are collecting.

Kim Ledger:

This makes me think of that book collection that we worked on together and how several of the things that you noted that the collector was passionate about collecting books, he was well-known in the book collecting world. And after his passing, his wife couldn't get them out of the house fast enough. I know part of it went to his alma mater, and then part of the collection went to the donor-advised fund.

The family's whole premise was to be able to make gifts to multiple organizations. And then to your point about the legacy, the auction house created that beautiful, beautiful legacy piece honoring the father in his collection, and it did stir up quite a bit of interest as well.

Colleen Boyle:

Yeah, and that's a really good example, Kim, of a situation where there is a large quantity of objects because the client had collected over many, many years and amassed a multimillion dollar collection. And obviously the family didn't want to have a fire sale. They weren't interested in any assets either. They didn't want to be the custodians of the assets either. So what are their options?

And it was a really fabulous project to work on because we really got to better understand that the family really did want to really honor the patriarch, the collector of the family, because it was such a passion and such a significant part of his life, this particular book collection. And as a result, the idea of coming up with a single owner sale as a method to honor the family member worked out quite nicely in this case because we could take the collection to a highly specialized book sale.

The collection could be cataloged so that the family members received a lovely, lovely copy of the books in the collection with descriptions, as well as a highlight of the family member, because there was a lovely bio about the collector, him as a collector, as a philanthropist, as a community member. And the fact that the proceeds were all going to be allocated into the donor-advised fund to ultimately be gifted out to various charities in the local community, because that is what the family already was doing and wanted to continue that into perpetuity as far as a legacy.

We had another situation that we worked on that I really thought was a fabulous way to utilize an asset that the family members were not interested in, and that was the coin collection where there was a collection of coins that were quite valuable.

Again, the family members were not interested in being the custodians of the coins, but what the family was interested in was teaching the next gen about philanthropy using the coin collection as a means to fund the donor-advised fund and using the donor-advised fund as an educational tool to really teach next gen on, how do you choose different philanthropies? How much money do you support annually? How do you choose the philanthropies? Should everybody have their own choice?

Should you work collaboratively and pick one nonprofit to support? I mean, there's a lot of decision making involved with philanthropic strategy. And to be able to use an asset that really had a significant value proposition, but nobody in the family was interested in being the custodian was really a great usage to fund the donor-advised fund to fulfill, again, a philanthropic strategy.

Kim Ledger:

Yeah, right.

Katie Collin:

And I love hearing these stories where it really is a family finding ways to honor somebody's legacy and really make an impact that can be lasting and so meaningful. And I know, Colleen, when we're having these discussions with individuals and thinking about how they're honoring someone, is it working with the next gen, one of the discussions that they're having is the difference between the related use of the asset and the non-related use of the asset and how that plays into a potential donation. Could you speak to that a little bit for us?

Colleen Boyle:

Absolutely. And I'm going to speak not only about related use and unrelated use, but I also want to pivot and talk also about cost basis and current value.

Katie Collin:

Perfect.

Colleen Boyle:

And it really has to do with tax related use versus non-related use. I'm going to use artwork as an example because that's very clearly delineated from the standpoint of related use. So if an individual has a piece of artwork that they would like to donate to an art museum and the art museum is going to use it in alignment with the mission of the museum, usually on exhibition, it might not be on exhibition full-time, might be pulled out for special exhibition shows, that would be considered a related use because the object parallels with the mission of the nonprofit.

That is the biggest differential. So for example, a piece of artwork going to an art museum could fulfill that related use scenario. A piece of artwork going hypothetically to the SPCA, maybe they're animal lovers or maybe they want to support an animal shelter. If the animal shelter is not going to use the artwork in alignment with their mission, which most likely it would not be in alignment with the mission, that would be considered an unrelated use. They can still make that donation.

It's just that the tax deductibility would be different. And we always recommend to talk to your tax advisor around what that would look like for any type of a situation. But it is very important to understand related use versus unrelated use when it comes to determining what that donation strategy may be.

We often find though, in all honesty, that clients tend to be who are very philanthropic in their mindset, even though they're concerned about taking advantage of the best possible tax situation, if in fact it's really going to benefit financially a nonprofit, oftentimes that philanthropic intent will outweigh the tax scenario, if that makes sense.

And particularly if individuals within a specific family unit are not interested in being the custodians, they're really looking for ways to support initiatives, to support causes, to support the nonprofits they care about. So it's really looking holistically at the whole scenario, both from a financial perspective but also from a philanthropic intention perspective as well.

Kim Ledger:

And I think it's important to point out that any gift to a donor-advised fund is not going to be related use.

Colleen Boyle:

Exactly. Usually it is not related use. Exactly. So it will follow a different structure. But that being said, the other thing that we come across, and I wanted to talk about cost basis versus current fair market value in trying to figure out really the best strategy. In some cases, it might make sense to monetize an object first and then use the cash proceeds to allocate the donor-advised fund or a nonprofit directly or another vehicle that would support a philanthropic strategy.

A lot of times clients are under the impression that the value of their objects continue to escalate, and that is just not always the case. So we always recommend for clients to really have a clear understanding of not only what they own, but really understanding the fair market value of that object at any given point in time.

Kim Ledger:

How do they do that?

Colleen Boyle:

They do that through an appraisal process. Yeah, through an appraisal process, and really understanding what does that value look like because they might be surprised. We were just working with a client who had a very large jewelry collection, and they thought that the values had escalated and they were trying to figure out ways to minimize paying capital gains. In reality, once we did the valuation, it turned out that the values had not escalated to the point where the client had thought.

Still very valuable. They didn't go down significantly either. It's just that there wasn't going to be that capital gain that the client thought they were going to incur. On a positive note, the client had a lot of options and can really execute the philanthropic strategy during lifetime, which is what they wanted to do anyway, to really see the impact of the donation and using the jewelry collection as a tool to be able to fulfill part of that philanthropic initiative.

Kim Ledger:

You had mentioned earlier when we were talking about related use, non-related use about if you make a gift to an institution, what's the current climate for that? I'm guessing museums often get hit up with potential gifts of artwork.

Colleen Boyle:

So again, it's very important to talk to the institution. And it could be an art museum. It could be a historical society. I mean, there's a lot of different institutions that will accept different types of objects, but not all objects. And even though collectors and individuals love what they collect, it might be that the institution already has those particular types of objects in their collection and they don't need anymore. And you have to keep in mind there is a cost to maintain these objects.

So museums are becoming more and more particular around what they do want to accept and what they don't want to accept because it is a cost to them to accept these asset classes because they're now responsible. They're the custodians to continue to maintain these particular projects, and it costs money to do that. So we always recommend definitely having a conversation with the institution, really getting a letter of intent as in that the institution is interested in accepting this asset.

It doesn't have to necessarily be immediate. It can be in the future, but the fact that they are actually interested. Most institutions, but most will have an acquisition committee. There's a process where they will actually discuss assets and objects and determine whether or not they want to accept certain asset types into their collection, does it meet their mission, or is it something where they feel like that particular asset class is already represented in their collection and it could be better offered either with another institution, or again, institutions will take financial contributions.

So it could be if somebody really wants to support a financial institution, going back to the donor-advised fund, they could always consider a monetization strategy, allocate the proceeds to the donor-advised fund, and ultimately support multiple institutions financially. And there's plenty of ways to utilize a financial contribution to institutions. They usually are not turning down financial contributions.

Katie Collin:

Probably not. Probably not.

Colleen Boyle:

And more often with larger collections that are going to institutions, more and more institutions are asking in addition to the asset for a financial contribution, again, to maintain that particular collection.

Kim Ledger:

I think we have time for one more question. Katie, did you have one more?

Katie Collin:

Can I steal that one then?

Kim Ledger:

Yes.

Katie Collin:

Thank you, Kim. So Colleen, as we wrap up our time with you, are there any other top issues that individuals and their families should be considering with the gifts of these passion assets? Just a quick summary for us to end with.

Colleen Boyle:

Yeah. I would say number one issue is communication. Really talking if there are heirs talking with family members about these assets. One, are any of the heirs interested? Maybe some of the heirs are interested in part of the collection. But if they're not, making sure that the collectors understand that it's emotional. Oftentimes heirs don't want to let their parents or grandparents know that they don't have the same interest and passion that they might have. But that's really not the approach.

The approach is to really have open conversations around interest in being the custodians and caring for these assets. If in fact the heirs are not interested, really thinking through then how can these assets be utilized and is philanthropy part of that strategy? And if it is, having conversations earlier in the process to think through what are the various options to consider to have philanthropic impact using these passion assets?

It might be that philanthropic strategies allocated in another part of the financial portfolio and maybe the solution might be a monetization strategy with the assets going back under assets under management. And that might be an opportunity as well. Every family is different, but what we see and what we highly recommend is really having conversations, understanding the intent, the interest, understanding value.

And if in fact an individual wants to contribute assets to specific nonprofits or institutions, definitely understanding the interest and understanding the process for acceptance as well. That really eliminates a lot of issues down the line. The matriarch and patriarch tend to be the most knowledgeable as the collector about the objects, and to be able to share all of that during lifetime is really, really important.

Katie Collin:

It is. Such a great note to end on, the importance of communication.

Kim Ledger:

It is great. Thank you so much, Colleen. It's a pleasure having you with us today. Thanks everyone for watching, or if you turned in via podcast, thanks for listening. If you want to learn more about Ren and how we might be able to help with your philanthropic program needs, visit reninc.com or email us at consulting@reninc.com. We also love to hear if you have questions or topics about planned giving you want us to talk about.

And of course, don't miss the great information we have in our Advisors Philanthropic Insights newsletter. Sign up at reninc.com/advisorinsights. Find all the links mentioned in the show in the description, and you'll find expert tips daily on our social channels. Check it out. Until next time, I'm Kim Ledger. Give wisely.