Heirlooms, art and the family home: how to pass on the things that carry the story, and the tax that comes with them

• A specific gift in a will fails (adeems) if the object is no longer owned at death; describe objects precisely and review the list.

• Tax on inherited objects differs by country: a step-up in basis in the United States, a market-value uplift and inheritance tax in the United Kingdom, a deemed disposition at death in Canada, and no tax event on death in Australia with the deceased's cost base carried to the heir for assets bought after September 1985.

• Art without provenance sells at a discount or does not sell; a provenance record is the single cheapest thing a collector can leave.

A will can leave a specific object to a named person. If the object has been sold, lost or given away before death, the gift fails and the person receives nothing in its place unless the will says otherwise; if it was sold by an attorney during the person's incapacity, some countries (England under the Mental Capacity Act, several Australian states) let the beneficiary claim the proceeds. Descriptions matter: "my grandmother's ring" fails if there are two, and "my jewellery" has been litigated over whether it includes the watch. Valuation at death sets the tax and the basis: in the United States the heir's cost becomes the date-of-death value, so the grandmother's Picasso bought for US$5,000 and worth US$5 million can be sold by the heir with no income tax on the gain; in the United Kingdom the estate pays inheritance tax at 40% above the bands and the heir takes a market-value base cost; Canada treats death as a sale at fair value, with the tax due in the final return, and the family's art collection can produce a bill the family must sell the art to pay; Australia has no death duty and no capital gains event on death, but the heir inherits the deceased's cost base for post-1985 assets, or market value at death for earlier ones, and pays when they sell. Chattels have their own small exemptions: personal-use assets bought for A$10,000 or less and collectables bought for A$500 or less are exempt in Australia; the chattels rules in the United Kingdom exempt items sold for £6,000 or less; the United States has none, and taxes gains on collectibles at 28%.

Provenance is the value: the invoice, the exhibition history, the letter from the artist, the photograph of it on the wall in 1974, the catalogue raisonné entry. An unprovenanced work is a work the auction house will not warrant, and a work with a gap in its history between 1933 and 1945 is a work the auction house will not sell at all. Insure at agreed value and revalue every five years; most collections are underinsured by half. Decide, and write down, whether the collection is to be kept together, given to an institution, or sold, and who decides; the sale nobody wanted usually happens because nobody could say what the collector wanted, and the institution that would have taken it was never asked while the collector could make the introduction. Where a country offers a tax route for cultural gifts, the decision belongs in the estate plan: the United Kingdom's Acceptance in Lieu settles inheritance tax with objects at a 25% premium and its Cultural Gifts Scheme gives a 30% tax reduction in life; Australia's Cultural Gifts Program gives a deduction at market value with no capital gains; Canada exempts certified cultural property from capital gains and gives a credit at fair value; the United States gives a charitable deduction at fair value for related-use gifts to museums and only cost for others.

Keep, sell or share. Sharing a house among siblings works for a holiday home with a written agreement (use, costs, exit, valuation, what happens when one sibling divorces or dies) and fails for a family home nobody lives in. The main-residence rules differ: Australia gives the estate or the heir two years from death to sell a main residence free of capital gains tax, extendable where the sale is delayed for reasons outside the family's control; the United States excludes US$250,000 of gain on a primary residence (US$500,000 for a couple) in life and steps up the basis at death, so the house is usually sold by the estate with no tax; the United Kingdom charges inheritance tax on the home with a £175,000 residence nil-rate band per person for homes left to descendants, tapering above £2 million, and the heirs take a market-value base cost; Canada's principal-residence exemption shelters the gain on one property per family per year, and the cottage and the house compete for it. A house left to three children equally is an instruction to sell it; if that is not what is wanted, the will should say what is, and give the child who wants it the first right to buy at valuation.

The methods families actually use. Rotation pick: each heir chooses one object in turn, order by lot, reversing each round (the snake draft), so that the last pick in round one has the first in round two. Value and equalise: each object is valued, heirs pick, and cash balances the totals from the residue. Family auction: heirs bid with notional credits equal to their share; the object goes to whoever wants it most, and the credits settle. The list: the parent allocates the objects that matter and leaves the rest to the rotation, which is the method that produces the fewest quarrels, because the parent, not the process, made the hard calls. In every method, the objects each heir has already been given in life are listed first, and the executor keeps the list.

Provenance record: one object.

Object: [ ]. Made by / made in: [ ]. Acquired: [when, where, from whom, for what].
Documents held: [invoice, letters, photographs, exhibition records].
Valued: [amount, by whom, date]. Insured: [policy, agreed value].
It goes to: [ ]. If they do not want it: [ ].
Why it matters: [ ].

The last line is the one the valuer cannot write and the heir cannot recover. "Why it matters" is a paragraph in the record and a story in the person's voice, and the story is what turns the asset back into the heirloom. A ring is a ring at the valuer's; it is a grandmother's ring only while someone can say what she said when she took it off.