Jason Preston, AAA, who is a Certified Member of the Appraisers Association of America and who regularly appears as an appraiser on PBS’ Antiques Roadshow, has handled plenty of wine inheritance cases in his career. One of the most memorable, he says, was when he was called in to appraise a wine collection in Bel-Air. The original cellar owner had passed away, leaving his entire wine collection to his family. What his heirs didn’t realize was that the cellar’s temperature controls had stopped working, leaving the wines exposed to 85-degree temperatures for months. Preston took one look at the condition of the cellar and knew the wine wasn’t salvageable. It was one of his shortest appraisal visits ever.
The collector from Bel-Air failed to properly plan for the care of his wine after his death, and as a result, it all went to waste, cooked in the California heat. This is a sobering example of why it’s important for collectors to develop a plan for the care of their wine collection to be implemented in case of a major life event such as serious illness, relocation to an assisted living facility, or death. Just as you would plan for what happens to your monetary and real estate assets, so should you plan for what happens to your wine. It’s never too early to start planning, and it’s a simple process when you have the right guidance.
Why You Should Have a Wine Inheritance or Sales Plan
The most common problem Jason Preston sees when he is asked to appraise a wine collection is that no specific directions for the care and dispersal of their wine were left by the collector for their family, caretakers, or executors. For instance, while performing an appraisal at a villa in Acapulco, Preston encountered a wine cellar whose humidity control had failed and was no longer regulating the cellar’s humidity, leaving the room so humid that water was dripping from the ceiling, racks, and bottles. Every wine label had melted off, so even though the temperature in the cellar was fine (and it was possible the short term exposure to high humidity had not by itself damaged the quality of the wine), the loss of the labels and absence of a location guide to determine which bottles were which wines resulted in a total loss for the collection. This could have been prevented if the collector had a clear plan for maintenance of the cellar’s mechanical systems that could be implemented by the property’s estate manager.
Keeping a well-organized cellar and accurate inventory for your use and enjoyment during your life is great, but it’s also very important to leave information for your loved ones so they know what wines you own, where you store your wine, and how to take care of your cellar. Preston adds, “You may have an up-to-date and thorough inventory of your wine collection, but it doesn’t do any good if your heirs and executors can’t find it when you die.” If you utilize off-site professional storage or are a subscription member at wineries where they hold your allotment for a certain amount of time before release, these are crucial details your family or other decision-makers will need to know should you become incapacitated or die. The benefits of proper planning are two-fold: first, your family will get the chance to drink some of the wines that you worked so hard to collect, and second, your family can benefit monetarily by selling or donating valuable bottles.
Building a Collection That’s Worth Passing On
If you hope to give your wine away after you die, you should buy from trusted sources now, so you know you’re getting authentic and good quality wine. Too many collectors think that they have dozens of rare wines in their cellars, only for their families to later discover that the wine is fake or poor quality. Shop with auction houses and online retailers that inspect bottles for authenticity, and give your family access to any authentication documents you have. If you own just one bottle of wine that is collectible and worth more than $1,000 at its peak, you’ll want to have a wine inheritance plan, even if it’s as simple as gifting that bottle to your nephew in your will.
If you own valuable wines, you’ll also want to look critically at the way you’re storing them. No matter how rare the wine is, if you’re storing it on top of your refrigerator, it’s unlikely to sell for much on the secondary market. Reputable auction houses will want evidence of a history of proper storage before accepting wine on consignment.
If you have a home cellar, make sure the temperature and humidity are ideal for long-term storage of your wine, and if they are not, you should take the necessary steps to improve the cellar’s conditions to keep your wines as safe as possible. If proper storage of your wine collection isn’t possible in your home, then professional storage becomes essential. Preston says, “The importance of proper storage can’t be overstated.” You’ll also need to tell your loved ones where all of your wines are stored, especially if your bottles are in different locations. Provide them with addresses, contact information, and a full inventory of the wines in off-site storage.
How to Make a Plan
Consider the following questions as you make decisions regarding the fate of your wine collection: Are any of your heirs passionate about wine? Would you rather your heirs sell your wine or drink it themselves? Do any of your heirs live in a state that levies an inheritance tax on inherited assets, and if so, what is the implication of inheriting your wine?
If you feel that your potential beneficiaries have no interest in wine or would be burdened by potential tax consequences, it may be best to sell or donate your collection after you are no longer able to care for or enjoy it. On the other hand, if you have friends or family who enjoy wine or who can benefit financially by inheriting the wine and monetizing it at a later date, you might consider bequeathal. Following are three general options for you to consider:
Auction House Sale
This is a great option for those who do not have beneficiaries to whom they want to bequeath their wine collection. If you are considering an auction sale for your collection, it’s a good idea to initiate relationships with auction house wine specialists while you are still collecting. Once you’ve established contact and gained some familiarity with your point person, you can inquire about the possibility of the auction house preparing a list of auction estimates for your wine collection. This is not the same as a fair market value or retail replacement value appraisal, but it can be helpful in determining the auction venue’s perception of your collection’s value as well as their interest level in continuing to develop a relationship with you (and your wine collection).
Preston says having a pre-existing relationship with one or more wine auctioneers can benefit your executors and heirs. Preston adds, “Instead of being unknown and starting from scratch, your decision-makers can work with your auction market contacts to ensure a smooth and easy consignment process for your wine cellar.” Because of this, it’s a good idea to start early building a relationship with a good auction house, like Vinfolio.
This is the simplest option to plan, but it also becomes the most complicated after your death. It’s as easy as writing a line in your will that specifies who you want to inherit your wine after you die; however, if you don’t give detailed instructions, your wine could be under-appreciated, undervalued, or compromised in quality. Include as many details as you can in your will, and work with an attorney familiar with the legal issues surrounding wine, especially as it relates to its sale or inheritance. In addition to leaving your wine to your heirs, make sure any apps, spreadsheets, appraisals, and databases you use to inventory your wine are accessible to your heirs. It’s also nice to provide your heirs with your tasting notes and advice on when certain bottles should be ready to drink.
Use an app like VinCellar to keep this information up-to-date, and don’t forget to tell your future heirs how to access it. You’ll also want to have a certified appraiser evaluate your wine collection and create a fair market value appraisal for estate tax planning purposes. A properly prepared appraisal can provide a cost basis for your wine in the event it’s included in your estate as a special asset class.
You may also want to consider setting aside a few specific bottles now to give to your loved ones. Buy wine in your children’s birth years, or cellar a case of your personal favorite vintage. You might also consider buying a vintage that you’d want your loved ones to drink in remembrance of you.
This is the ideal option for collectors who don’t have any heirs or who want to avoid the potential estate tax on their wine collection. As in the scenario of bequeathing your wine to other heirs, you should hire an appraiser to prepare a fair market value appraisal for estate planning purposes.
Once you have an idea of your collection’s value, decide what charity or charities you would like to support. It’s important to communicate with the charity you’ve selected to make certain they are recognized by the IRS as a tax-exempt organization. They should be able to provide you with their federal tax ID and you can verify their status via the EO Select Check tool on the IRS website.
Equally important is to confirm that the charity would actually like to receive the gift of your wine. “All too often charitable organizations are burdened with bequests they aren’t able to use or easily monetize,” Preston says. But if you do the legwork and find the right charity, your donation can be tax deductible and the qualifying 501(c)3 organization benefits by receiving a donation they can monetize to support their cause.
Remember, you can’t drink your wine after you’ve passed on, so if there’s a bottle sitting in your cellar that you can’t wait to try, you should open it. Preston concludes, “Wine was made to drink, after all, and there’s nothing wrong with enjoying your wine to the fullest while you’re alive.”
Whether you are starting your high-end wine collection or adding to an established portfolio, Vinfolio is your partner in buying, selling, and professional storage. Contact us today to get access to the world’s best wine.