Protecting high-value assets

The request for help landed on my desk like a 4.5-billion-year-old meteorite.

In fact, the inquiry was regarding a rare, space-related artifact one of my Family Office clients had recently bought at auction.* Naturally, he was excited about displaying the multi-million-dollar find in his living room, and as his advisor I shared in his enthusiasm. But when it came to working out the details of owning and safeguarding this otherworldly purchase, we had to come back to Earth.

In my 25-year career, I’d never worked with this kind of unique, high-value asset before—and there was no manual for it. How do you arrange for this artifact to be transported? How do you insure it? How does it get installed in the home and by whom? What environmental factors are appropriate for it to be displayed?

It was fascinating to work through each question—and if ever another client buys a piece of the universe, I now have the manual. While this type of purchase is rare, it exemplifies the wide range of complexities and considerations people face when they own unique and high-value assets.

Here is a look at some of the issues you may encounter, as well as some best practices that can help protect you—and the assets.

Jewellery, artwork, antiques, and other personal valuables
These kinds of items are typically not automatically insured under existing home insurance policies, particularly if they exceed a certain value. Separate insurance coverage is a must and regular appraisals for high-value items should be done to ensure you always have the right coverage. But protecting these assets shouldn’t stop at the insurance policy. You’ll want to take extra steps to keep them safe, particularly if the items are irreplaceable, like family heirlooms.

Best practices:

• For items sensitive to environmental factors such as temperature, humidity, and sunlight, make sure you adhere to the requirements so that the value is preserved for future generations.
• Consideration must be given to security. Is it best for the items to be stored in a bank vault versus a secured storage area (a safe or vault) at home? The nightstand may not necessarily be the best place for them!
• Keep a record of purchase documentation, gemologist reports, appraisals, and photographs of each item so they can be clearly identified—especially if there are multiple items that are similar (for example, diamond stud earrings or paintings by the same artist).

Yachts
Around the world, interest in yachts is on the rise, as enthusiasts seek adventure travel at sea. But for many owners, these are uncharted waters. With ownership comes considerations such as registration, ownership structure, management, insurance, and taxes. For example, owners should be aware that Canada recently implemented a luxury tax that applies to boats/yachts that cost more than $250,000 and were manufactured after 2018. Upgrades or accessories installed within a year of the initial acquisition are also subject to the tax.

Best practices:

• Consider the ownership structure of a yacht. Particularly if it is used for charter purposes, it may be advisable to have it owned by a corporation to limit legal liability.
• There are special international maritime treaties. Depending on the geographical territory and use of the yacht, registering the vessel in a particular jurisdiction may be more advantageous.
• If your yacht requires a crew, make sure you understand the employment and payroll requirements. Crew members can originate from different countries. Specialized companies (namely, recruiters) can help manage this process and ensure compliance.
• Yacht insurance is a specialized area, so choose a trusted and reputable provider. When purchasing a yacht, make sure you understand at what point ownership transfers so that appropriate insurance is in place and your new purchase is adequately protected.

Aircraft
Owning a private aircraft has many benefits, such as the peace of mind of having your own pilots and mechanics whom you know and trust, making travel arrangements at short notice, and bypassing the congestion in public airports. Just like owning a yacht, aircraft ownership comes with a luxury tax and a host of considerations.

Best practices:

• As with yachts, consider the ownership of the aircraft; they are typically owned by a corporation to limit legal liability. Aircraft insurance is a specialized area, so choose a trusted and reputable provider.
• Engage an aviation management company to manage the aircraft, providing services such as storage (indoor hangar versus outdoor storage), flight charter opportunities, accounting, and other services such as fuel, maintenance, and commissary.
• There are specific Canadian tax matters to be aware of with regards to aircraft ownership. For example, to claim an HST input tax credit, the aircraft must be used primarily (more than 50 per cent) for business (i.e., third-party charter) purposes. Additionally, personal use of a corporate-owned aircraft will result in a shareholder benefit being assessed to the owner for the value of the flights. It is advisable to discuss your situation with a trusted tax advisor who is experienced in this area.

There are many considerations beyond what I’ve covered here. If you’d like to learn more about protecting your unique and high-value assets (or if you are indeed looking to buy a one-of-a-kind artifact), don’t hesitate to reach out. These assets, especially those that can’t be replaced, are worth a closer look.

* Details have been changed to protect client confidentiality.

KPMG in Canada offers a range of services to help you manage your wealth and your assets efficiently and strategically.