What to do with an inherited wine cellar

Protect the wine first

Wine is one of the few estate assets that can lose value simply by being left alone. The conditions that matter are well established: a steady temperature close to 55°F (13°C), moderate humidity, darkness and as little disturbance as possible. Heat does the most damage. Above about 70°F (21°C) wine ages faster than it should, and sustained heat can spoil it for good. Rapid or repeated swings in temperature are as harmful as the number itself, because they push wine past the cork.

In the first days:

• Confirm that the cellar’s cooling is working, and keep the power, alarms and maintenance contracts paid.
• If the house is empty, arrange for someone to check the cellar regularly, or fit a thermometer that records the highest and lowest temperatures.
• Keep the cellar locked, and note who holds keys or codes.
• Do not move the wine in a hurry, and never in summer without temperature-controlled transport.
• Ask the insurer, in writing, whether the collection is covered while the house is unoccupied and whether the policy covers spoilage if the cooling fails. Standard homeowner’s policies cover wine only against named causes of loss such as fire and theft, and usually not spoilage when the cooling or power fails.

Resist the natural wish to open a few good bottles in memory, or to give favorite wines to family and friends straight away. Until the inventory and valuation are done, no one can know what those bottles represent, and in the United States an estate’s personal effects are expected to be itemized and valued.

Find the records

A cellar’s paperwork is part of its value. Purchase records show where wine came from, which affects how it sells, and in Canada they help establish the cost base used on the final tax return. Look for:

• Invoices and receipts from merchants, auction houses and estates.
• Cellar books, spreadsheets or cellar-management software.
• Accounts with merchants and auction houses, which often keep a purchase history online.
• Statements from professional storage facilities, which keep their own inventories.
• Wine ordered en primeur, or as futures, and not yet delivered. Until delivery this is usually a contract with the merchant rather than wine the estate owns outright.
• Wine held abroad, particularly in bonded warehouses in the United Kingdom, where wine is stored with duty suspended.

Wine in bond deserves particular care. The warehouse deals with the owner recorded in its own books, so the strongest position is wine allocated to an account in the owner’s name. A merchant’s certificate saying that the owner holds a certain number of cases is weaker, and a merchant’s failure has left collectors as unsecured creditors in the past. Contact the warehouse early to confirm what it holds and in whose name, and keep every storage account paid. Warehouses can hold a lien over goods for unpaid charges.

Make a proper inventory

Everything that follows depends on a complete, accurate inventory. For each wine, record:

• Producer, wine, vintage and bottle size.
• Quantity, and whether the bottles are in their original wooden case or carton.
• Location: which cellar or room, which storage facility, which bonded warehouse.
• Condition: fill level, label, capsule, cork and any sign of seepage.
• How and when it was acquired, where the records show it.

Fill levels are recorded in standard terms. In Bordeaux-shaped bottles they run from “into neck” and “top shoulder” down to “mid shoulder” and “low shoulder”; in Burgundy-shaped bottles they are measured in centimeters below the cork. Some loss of level is normal in older wine. A low level in a younger bottle, or signs of seepage, can point to heat or poor storage. Photographs of each wine, with the labels legible, help with insurance, valuation and any later sale.

Value it for the purpose at hand

In the United States, an estate’s assets are valued at fair market value, which the Treasury regulations define as “the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.” It is not the price of a rushed sale. The valuation date is the date of death, unless the executor elects the alternate valuation date six months later, which is allowed only when it reduces both the value of the estate and the tax due. If the executor makes that election, bottles sold or distributed within the six months are valued on the date of sale or distribution.

Where an estate’s personal effects include articles of marked artistic or intrinsic value above a modest total, the regulations call for an expert appraisal, made under oath and filed with the estate tax return, together with the executor’s statement on the appraiser’s qualifications and “disinterested character.” Wine is not among the examples the regulation names, but a valuable cellar is usually treated as needing one, and the estate tax return asks directly about collections with collectible value, with appraisals attached. The heirs’ tax basis generally follows the value used for the estate.

In Canada, a person is treated as having sold their capital property at fair market value immediately before death, unless it passes to a spouse or common-law partner, and any gain is reported on the final return. Provinces add their own requirements. Ontario’s estate administration tax, for example, which applies when an estate certificate is issued, includes goods at fair market value, supported by documents such as an appraiser’s opinion of value.

Two cautions apply everywhere. A valuation prepared for one purpose should not be reused for another: an insurance figure reflects what it would take to replace the wine, not what it would fetch. And the person valuing the cellar should be independent of any later sale. (Our note on how a collection is valued goes further.)

Sharing a cellar among heirs

There is no single right method, but the common ones work well when they are agreed in writing and use the same valuation for everyone:

• Equal-value lots, built from the inventory.
• Heirs taking turns to choose, with each choice recorded at its value.
• Selling some or all of the cellar and dividing the proceeds.
• Setting aside bottles with personal meaning before anything else is divided.

Practical limits often decide the question. Wine cannot be sent through the US mail, and individuals cannot ship it with the major carriers. States set their own rules on bringing wine in, and moving wine between countries involves customs and, in Canada, the provincial liquor board. Wine in a UK bond, by contrast, can change owners without moving at all.

Keeping, selling or both

In the United States, selling wine generally requires a license, so a private owner usually sells through a licensed auction house or retailer. The details differ by state. New York allows an unlicensed owner to sell to or through a licensed party, including at auction. California offers executors a special temporary license to sell estate wine. In Canada the provinces decide: Ontario issues auction permits to estate executors and administrators, and in Quebec sales go through auction houses authorized by the SAQ.

A single quick sale to close the estate rarely serves the heirs. Different wines suit different routes, and timing matters. Our note on selling a collection covers the options.

Common mistakes

• Moving wine in the heat, or before it is insured.
• Opening or giving away the best bottles before the inventory and valuation.
• Throwing away invoices, cellar books and storage records.
• Letting storage or bond accounts lapse.
• Taking a merchant’s certificate as proof of ownership without checking the warehouse’s records.
• Selling everything at once to close the estate quickly.

This note is general information, not legal, tax or insurance advice. Rules change and differ by state, province and country. For a particular wine, collection or estate, write to us.

Sources

1. Treasury Regulation § 20.2031-1, definition of fair market value (eCFR)
2. Treasury Regulation § 20.2031-6, household and personal effects (eCFR)
3. 26 U.S.C. § 2032, alternate valuation (Cornell Law School)
4. Canada Revenue Agency, capital gains when someone has died
5. HM Revenue & Customs, Excise Notice 197: excise warehouses
6. Alcohol and Gaming Commission of Ontario, selling alcohol at an auction
7. New York Alcoholic Beverage Control Law § 99-g
8. California Business and Professions Code § 24045.8, special temporary license for estates (FindLaw)
9. IRS Form 706, Schedule F
10. Government of Ontario, estate administration tax
11. Wine Spectator, how to store wine