As we grow older, most of us eventually come to terms with our own mortality. One of the fundamental truths linked to this realization is the fact that you can't take it with you when you die. As a result, many people are interested in leaving a financial legacy to their heirs. That can mean bequeathing assets to your children, grandchildren, nieces, nephews, or perhaps just a good friend who was always there for you.
Of course a financial legacy can come in many different forms. Real estate, like the family home or vacation house, is always a popular option. Retirement accounts, like traditional and Roth IRAs, can also be given to a beneficiary upon the passing of the owner. Annuities and life insurance policies are a third possibility for leaving a financial legacy for your loved ones.
And yet, all of these different wealth vehicles have drawbacks when estate planning. Real estate is inherently cash flow negative unless it is rented out. This leaves open the possibility that the recipient of an inherited property will be forced into the role of accidental landlord in order to support the maintenance and tax expenses on the property. In a worst case scenario, your beneficiary may be forced to sell the property, defeating the purpose of bequeathing it in the first place.
Retirement accounts are (usually) cash flow positive, but suffer from complex distribution rules once inherited. For example, IRA beneficiaries must generally drain the account within 5 years of the death of the original owner. Alternatively, they can elect to receive regular distributions from the IRA based on their life expectancy.
As you can probably guess, a tax advisor or accountant is almost a necessity when dealing with inherited retirement accounts. In addition, those accounts will most likely be stuffed full of conventional financial assets like stocks, bonds and mutual funds. This exposes this type of financial legacy to the unpleasant prospect of an unexpected market crash or economic dislocation.
Annuities and life insurance policies are perhaps the most straightforward way of leaving a financial legacy to your heirs. Life insurance makes a tax-free, lump-sum payment to your designated beneficiary upon your death, while annuities pay an annual income stream. But these investment vehicles are only as good as their issuing institutions. Yes, insurance companies are ostensibly regulated to ensure their financial health, but I would not put a great deal of trust in this fact.
AIG was one of world's largest insurance companies, but that didn't stop it from almost collapsing in the financial crisis of 2008-2009. It was only due to herculean efforts on the part of the U.S. Federal Reserve that AIG was able to survive. In the end, insurance companies pay policies off from their stock and bond holdings - investments from the same markets that are currently grossly overvalued.
This situation leaves many of us with a conundrum. On the one hand, we want to give a meaningful gift to our heirs - a financial legacy that will help them achieve their life goals. But many of the conventional choices available to us are deeply flawed, particularly in light of the financial markets' extreme valuations. Are there any financially stable estate planning options that will stand the test of time?
There is a simple answer to this question; antiques may just be the perfect financial legacy for your heirs. These compact treasures have been coveted by the wealthy and powerful for centuries. They are often crafted from the very finest materials known to man, including sparkling precious metals, glowing gemstones and lustrous hardwoods. And perhaps best of all, many fine pieces are available for shockingly modest prices.
Of course, antiques have other estate planning advantages as well. For instance, because they are physical objects, antiques can help keep less disciplined loved ones from foolishly squandering their inheritance. This is an omnipresent problem with a traditional inheritance of cash or easily liquidated securities, where the temptation to spend on that new luxury car or fabulous European vacation always beckons.
In addition, most investment quality antiques are incredibly durable. Regardless of whether it is antique sterling silverware, old designer jewelry or vintage mechanical wristwatches, these items are already 50, 100 or even 200 years old. If they are properly cared for, there is every chance that they will last a few more centuries. In fact, it is possible your heirs may eventually bequeath your fine antiques to their own children or grandchildren!
There are a few things you should be aware of before considering antiques as a financial legacy, however. First, it is important that the item you wish to give an heir is something he or she would be interested in. Don't try to leave an expensive Art Deco platinum and diamond ring to your daughter if she only wears costume jewelry. Likewise, an ancient coin collection would be lost on a grandchild who has no interest in ancient history or numismatics.
It is also vital that you make a list of who gets what. The last thing you want is for your family members to fight over who inherits your treasured 14 karat gold Waterman Ideal No 552 fountain pen. Better yet, consider slowly giving away choice pieces to chosen family members while you are still alive. That way you can be certain that the right person gets the right piece.
Otherwise, it is critical to record your wishes in your will, or attach an addendum to your will listing your prized possessions along with the intended recipient. It is also wise to keep meticulous records of each antique, so that your heirs understand just how special the items you are giving them are. Remember, many people will not recognize an outstanding antique by sight alone. A written catalogue identifying your antiques will help your family understand how special and meaningful your financial legacy really is.
But maybe the best reason to consider using fine antiques in your estate planning is because they are discreet assets. In today's digital world, any holdings of conventional financial assets, like stocks, bonds or real estate, should be thought of as public knowledge. Your stock brokerage firm and its employees know about them. The securities transfer agent knows about them. The lawyer who prepared your will knows about them.
Even the government knows about your paper assets, or can find out about them with trivial effort. Fine art and antiques, on the other hand, are one of the last forms of wealth that are almost completely private.
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