We’ve lately received several letters inquiring about estate planning, including this one: I have eight “special” cars that I have acquired over approximately 20 years. I maintain and drive them regularly. They are basically cars I always desired while growing up, which is probably a typical story. I will probably not sell them before I die because I enjoy them, so I will leave the cars to my wife and children. However, my family have limited interest in the cars. I’m trying to prepare instructions in my will for the best way to sell the cars, if so desired, starting by […]
We’ve lately received several letters inquiring about estate planning, including this one:
I have eight “special” cars that I have acquired over approximately 20 years. I maintain and drive them regularly. They are basically cars I always desired while growing up, which is probably a typical story. I will probably not sell them before I die because I enjoy them, so I will leave the cars to my wife and children. However, my family have limited interest in the cars. I’m trying to prepare instructions in my will for the best way to sell the cars, if so desired, starting by referencing the SCM Pocket Price Guide as one resource for determining values. I’m wondering if you have any suggestions as to the best methods to dispose of these cars without it becoming a “fire sale.” — An SCMer
You’re not alone
This is a major topic of interest among car collectors. Our hobby’s demographics are such that collectors are “aging out,” and strategies for dealing with their collections are of utmost importance.
There are really only four general approaches to estate planning for your car collection:
1. Sell the cars before you die. That will maximize their value because you know everything about them and can assist in their sale, making the best choices, and selecting the right people to help with the process. However, selling the cars while you are alive triggers income tax on the gains.
2. Leave the cars to those family members who want them. This has two serious shortcomings, which is that your family members may not want them and those who do might not be able to afford them. As you know, cars are negative-cash-flow assets. While they might appreciate in value, they don’t produce any income yet require lots of money for maintenance and storage. That means your beneficiaries need other funds to cover their car ownership.
3. Leave the cars to charity. This also has its drawbacks. Existing museums are not necessarily interested in bearing the costs of owning your cars. Starting your own museum is an expensive undertaking. It needs a home and an endowment, as public admissions will never be enough to cover its costs.
4. Let your estate sell the cars. That eliminates the income tax problems because the basis of the cars steps up to their fair market value at your death. But it also leaves the sale effort in the hands of your family or estate fiduciaries, who may not know how to obtain the best possible sales prices.
Maximizing value
Many collectors, including our subscriber, choose option four. In that case, it becomes necessary to help prepare your family to maximize the value of the collection. This starts with getting the cars into sellable condition now.
Don’t leave your family in a position where they have to spend money to make a car ready to sell. There is too much risk that they will end up throwing good money after bad, or “fixing” things that don’t need it. It’s best if you get the cars into sellable condition yourself — and keep them that way. That doesn’t mean you should restore them all. Look at them critically, individually, and imagine that you were going to sell them today. What would you do to each car to produce the best possible result?
Taking this advice will produce two clear outcomes. First, it will be much easier for your family to sell your cars. Second, you will enjoy driving them more while you are still with us. Note the second point — there’s no sense in obsessing over this and never driving the cars again. Use them! But also keep them in sale-ready condition.
Documentation
Are all your cars properly titled? Collectors are notorious for holding “open” titles, where the last owner signed off on the title but it has not been formally transferred, whether to avoid sales taxes and registration fees or for some other reason. Now is the time to change that strategy. Even if all you do is title them in a Montana LLC, you’ve improved the situation. (Although you might want to look at the August 2024 “Legal Files” to see why that strategy may have its shortcomings.)
Next, research and establish the provenance of your cars. If your car has a history that adds to its value, document it. The better the paperwork you can assemble, the more it can add to the value of the car. You can’t expect your family to do this without you.
Of course, you will also want to get all the service records and receipts together. Nothing impresses buyers more.
Expert advice
It’s always best to consult an expert, so I contacted Spencer Trenery. With his father Bruce, he owns and operates one of the best-known collector car dealerships in the country, Fantasy Junction. Unsurprisingly, as many as 20% of its consignments come from estates, demonstrating that this is a big part of the market.
Trenery agrees that you should start with making sure all titles are in order and building documentation files. “Full, organized documentation in a file that can just be turned over to the dealer is a huge help,” he says. “If it’s a Porsche, get a Certificate of Authenticity. If it’s a valuable Ferrari, consider getting Ferrari Classiche certification.”
It’s also important to get your legal affairs in order. “We’ve had many situations where we are ready to complete a sale and we find out that no one has the legal authority to sell the car,” Trenery says. “Everything has to wait while someone opens a probate.”
Sales channels
Generally, your venue choices to sell a collector car are auctions (including online), dealer consignments, and classified ads such as Craigslist. Consider what is the best way to sell each car individually, as it’s likely not the same for all of them. Whatever the answers are, write them down for your family. You know the market and your cars better than your family does, and they will benefit from your guidance.
Success at auctions, whether online or in person, requires great presentation. The car must be presented in its best appearance, and enough critical information must be provided to make bidders confident in the quality and condition of the car. The same thing goes for Craigslist and other online listing sites. Effective presentation is as much art as it is science, and many people have made their business out of assisting collectors here. Identify who those people are and get them lined up ahead of time.
Know that there has been some cross-pollination here, as some dealers are now selling their inventory through online channels. For example, Trenery told us, “Last year, we sold 170 cars, and 100 of them went through Bring a Trailer.”
If you think an auction is your best venue, make sure to pick the right auction house to sell each of the cars. You don’t want your family to consign a multimillion-dollar Ferrari to a regional auction company that specializes in estate sales. It’s also critical to pick the right auction. For example, some cars might do better at Scottsdale than at Monterey. Whatever you decide, your best strategy is to talk to the auction companies ahead of time and make sure they would be willing to take your car at your chosen venue.
The same thing goes with dealer consignments. All dealers work best in their sweet spots, and not so well when they are given a car outside their comfort zone. Leave instructions for your family about which dealer or auction house to use for each of your cars.
Values
It’s generally not a good idea to set minimum sales prices for your family, as those can get out of date quickly and box them in. Consider how different today’s market is than it was two years ago. But general thoughts about value, perhaps from your insurance policies, can be useful if they are explained to be just current estimates.
We often get asked about appraisals, which can be helpful but also go out of date quickly. It may be best to identify capable appraisers for your family to consult at the time. Families are notorious for getting valuations wrong, either thinking valuable cars aren’t worth much, or that average cars are worth an overblown fortune.
The key point is to do your homework now. Take the time to interview dealers and auction companies, make the right choices, and write it all down. Providing a business plan for your family will not only make it easier for them to unload your cars but also give you peace of mind. ♦
John Draneas is an attorney in Oregon and has been SCM’s “Legal Files” columnist since 2003. His recently published book The Best of Legal Files can be purchased on our website. John can be contacted at john@draneaslaw.com. His comments are general in nature and are not intended to substitute for consultation with an attorney.