Liquid assets

  • Subtitle: Wine can often be the most illiquid asset in an estate
Written by  Warren Porter Posted Date: May 23, 2011
Photo: Hemera
Photo: Hemera
Wine, ironically, is often the most illiquid asset in an estate. Whether the estate is the result of a death, divorce, or bankruptcy, laws dating back to the days of prohibition restrict avenues available to administrators and executors. In this article we explore the methods of realizing cash or a taxable benefit from the fruit of the vine.

Every province in Canada, whether it is privatized or where the government controls sale and distribution, has regulations surrounding the “private sale” of alcohol. Laws created to stop boot-legging also remove the ability for a private collector to sell wine to another individual. As such, executors are often left with a sizable asset and few options that are legal.

Charitable auctions are one way to liquidate the collection with most provinces allowing this practice to some degree. Ontario has the most possibilities with auctions being held almost every month for causes such as Covenant House, the Toronto Symphony Orchestra, the Canadian Opera Company, and a host of schools. The executor would contact one of these charities and provide a list of wine that is potentially available. A Canada Revenue Agency-approved appraiser would provide the value of the wines that the estate could receive in the form of a tax receipt should they be donated for sale in an upcoming auction. The final realized price at auction does not affect the amount of the tax receipt.

The wine is typically collected by a third-party company such as KDL Wine or Iron Gate Private Wine Management. It is then catalogued, photographed, and sold at a live event and can be a wonderful way for the estate to bequeath to its favourite charity.

Should an estate wish to realize cash for the wine, however, there are surprisingly few options depending on the province. British Columbia has no wine auction outside of the odd charity event. The first and only auction in Alberta took place in December 2010 by the auction house, Hodgins Art. Hodgins applied for a licence from the Alberta Gaming and Liquor Commission and was granted permission to hold this one-time event with a total of 400 bottles from an estate netting $56,000 plus 15-per-cent hammer.

The Liquor Control Board of Ontario has been holding an annual fine wine auction since 2002, usually in October or November. Collectors from other provinces and even the United States are invited to consign wine to this three-day event that sells approximately $3 to $4 million worth of the finest vintage wine available.

The LCBO will negotiate with the estate what the “reserve bid” will be for each lot meaning the lowest it can be sold for without being withdrawn. When the wine is sold the estate typically receives 84 per cent of the hammer price (sale price exclusive of taxes or house commission) with the remaining 16 per cent going to the LCBO as commission for conducting the sale. The successful bidder will then pay the hammer price plus 17-per-cent buyer premium plus HST in the hammer and the premium. As an example, a bottle of wine that sells for $1,000 will cost the buyer $1,322 and net the estate $840. Also for foreign buyers, the wine must be shipped through pre-approved LCBO-designated agents, involving further fees.

What is important to note is that the LCBO is not obligated to take any or all wine from a collection for its auction. With over 2,300 lots in the last auction at an average value of $1,500, the LCBO appears primarily interested in the highest value wines. We spoke with one estate administrator who was told by the LCBO that only five per cent of their collection was worthy of its sale and it had no interest in the remaining bottles.

In Quebec, an auction house named IEGOR holds wine auctions on a continuous basis and has been since 1993. Potential buyers can also bid online. IEGOR has been granted permission by the Société des alcools du Québec to conduct these auctions as the SAQ does not conduct its own. The average sale is 250 to 300 lots and the frequency is monthly.

The only other company to conduct a private wine auction is my company Iron Gate in Toronto. In February, we used a special occasion permit available to estate executors, administrators, and sheriffs to conduct a sale on behalf of the estate of Ian Grant, a prominent Toronto collector. A first of its kind in Ontario, the auction was held at the prestigious Spoke Club. It attracted a standing-room-only crowd of approximately 150 bidders for the 2,500 bottles that went up for sale by renowned auctioneer Stephen Ranger.

The results demonstrated a high demand for vintage wines with all lots selling out and a final intake of 125 per cent of the high appraised value. As importantly, Iron Gate was able to auction all of the wines from the collection including a very large percentage that would likely not have been of interest in an LCBO auction.

The logistics surrounding a wine auction are significant and cannot be managed by the average auction company. Wine not only needs to be catalogued, appraised, photographed, transported, and placed into lots, it must also be stored in a temperature and humidity controlled, high-security vault. Because we have taken care of the logistics for many of the charity auctions mentioned earlier, we were in a unique position to provide this service to the estate.

Administrators in other provinces must realize that transporting wine across a provincial border to utilize the services of any of these auction houses is contrary to the Importation of Intoxicating Liquors Act. The act states that no person shall import, send, take, or transport into any province any intoxicating liquor, except such that has been purchased or consigned to the provincial liquor board. Toronto lawyer Ian Blue has published articles suggesting the act is unconstitutional in that it restricts the free admission of the products of one province into another.

So while wine may not be as “liquid” as stocks and bonds, there are legal options available depending on the makeup of the collection and the province in which it resides. The first call of any executor should be to one of the contact people below to determine the option most suitable to their needs.

Warren Porter, Iron Gate Private Wine Management, Toronto, 416-234-9500
Lawyer Arnold Schwisberg, Markham, Ont., 905-530-2110
John Yoxall, Liquor Control Board of Ontario, 416-864-6890
Laurent Berniard, IEGOR, Montreal, 514-344-4081
Kevin King, Hodgins Art, Calgary, 403-252-4362

Warren Porter is president of Iron Gate Private Wine Management, a collector services company he founded in 2004. Iron Gate provides wine storage, auction, professional buying, and inventory services for local and international clients, charities, and consulates.

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