Our firm has a personal love for unique and rare cars, and many of our clients share that same passion. As such, we have become very experienced in educating clients in the nuances of estate and financial planning specific to car enthusiasts and collectors. Below are some key considerations for the car lover in your life who may want to review their own financial plan as it relates to their cars or collection.
Make sure you are organized
- Institute a comprehensive review and cataloging of all car assets. Be sure to collect and clearly label all spare parts and records, such as purchase paperwork, titling information, receipts for parts and restoration work, and paperwork for storage rentals. The owner of the collection may have specialized knowledge of the car’s history or restoration work that will be lost if not effectively communicated should something happen to you. Having a clear inventory list will also help outline potential risks and rewards of the portfolio. There is now software on the market that digitally tracks the maintenance history and restoration work for collectors and is a wonderful tool to prove provenance.
Regularly obtain an appraisal report
- Like any other hard-to-value or illiquid asset, it is important to have a regular appraisal performed every few years to keep on file for financial or insurance purposes. These reports may also be useful for evaluating your collection’s viability as you decide what should be held for investment or passion or sold to help fund the collection’s acquisitions or maintenance costs.
Understand your auto insurance options
- When you have antique, classic, or collectible cars, look for classic car insurance because these types of vehicles do not always depreciate like a regular car. You typically can find classic car insurance that offers payout options of either agreed value or stated value. Agreed value is a better choice for classic car owners because you agree to the value of the car with your insurance provider in advance and as the car appreciates you can increase the payout amount. Most standard insurance providers do not offer agreed-value coverage unless they partner with specialty providers.
Potential to borrow off collection value
- Collections are increasingly part of asset-backed lending programs. You can indeed borrow against the auto equity value of your portfolio. However, there are risks should you not be able to repay the loan. Interest rates may also be more adverse than standard portfolio loans or other lending options.
Review your estate plans through a will or trust
- Unless specific changes are made, car collections are assets that will ultimately pass through a will and go through a potentially lengthy and costly probate process. In addition, the executor of your will may not have specialized knowledge of the car collector world. Therefore, it may make sense to name a specialized executor with the authority to deal with only your car collection. Having someone with specialized knowledge may help ensure that your beneficiaries receive the full market value of any cars that are selected to be sold. Additionally, if you are interested in avoiding the probate process, you can either hold vehicles Jointly With Rights of Survivorship (JTWROS) or place the collection inside a trust to avoid probate.
Using cars as charitable donations
- For those whose heirs may not share the same auto enthusiasm, there are the options to donate cars to charity either during your lifetime or at death. In order to receive a deduction for the full fair market value of a car during your lifetime, the donation must meet three criteria: (1) you must hold the car longer than one year, (2) you must donate to a public charity and not a private foundation, and (3) the donated car must be put to use in the charity’s tax-exempt function – such as a car museum, for example. If the car is used for another use, you can only deduct up to the cost basis (i.e., original purchase price) of the car. Any cars donated at death have no related-use requirement and you will receive a deduction for the full fair market value.
Interested in how we can help?
Disclaimer: Information provided is for educational purposes only. HBWM does not provide tax, legal, compliance, or accounting advice. In considering this material, you should discuss your individual circumstances with professionals in those areas before making any decisions. Further, HBWM makes no warranties with regard to such information, or a result obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.