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Advisors Need To Be Adroit With Hard Assets

Tangible assets are gaining recognition as a new asset class, but they need to be handled carefully in terms of how they’re valued, checked for authenticity, insured and incorporated into estate and tax planning, according to those familiar with the sector.

“We’re getting to the point where we believe that a financial advisor could be sued by [clients] for not providing help with regard to tangible assets,” said George Brown, chief marketing officer of Summit Trust Company.

An increasing number of high-net-worth Americans are building wealth through the accumulation of hard assets that are more portable and easily transferable than real estate.

These assets include both traditional collectibles, such as fine art, jewelry and historic documents, and a newer generation of valuables such as sports memorabilia, classic cars, photographs and comic books.

It’s an asset class that’s not only susceptible to theft or damage, but also to litigation, income taxes, estate taxes, creditors and divorce settlements. Unprotected tangible assets can be subject to a 40-percent tax hit at the owner’s death, Brown noted.

To address this issue, Summit has created a product called Treasure Trove Trusts, which are a series of tangible asset trusts

Summit lists seven Treasure Trove Trusts on its Web site, starting with a basic living trust designed to avoid probate, maintain privacy and specify how and to which beneficiaries the tangible assets will be left. Combinations of trusts can be tailored for a family’s particular needs, Brown said.

A Treasure Trove Protection Trust is designed to protect tangible assets from the claims of creditors or litigants and is designed for clients who are getting married or going into a business, or those who face a high risk of litigation, such as doctors. In the case of divorce, Brown said, “once the asset is in the trust, and it’s owned by the trust and the trust is properly drafted, it’s better than a prenuptial agreement.”

A Treasure Trove Dynasty Trust is for clients who want to combine tangible asset protection and avoid federal estate tax. This type of trust is usually settled for the client by a third part, most often a relative, and will have provisions to avoid estate taxes for several generations. The client can convey tangible assets into the trust and they will not be part of his or her estate or accessible to creditors.

Another important feature of the trusts is that tangible asset specialists manage the assets. Summit recommends that clients work with Pall Mall Art Advisors, an international appraisal and advisory firm, and Trōv, a firm that designs software systems to manage valuable collections.

“Until now, wealth managers have managed their clients’ risk and made critical decisions about their estates by analyzing the status of their financial assets, mostly to the exclusion of their personal and real property,” said Scott Walchek, Trōv’s founder and chief executive.

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