IL Estate Planning Blog

Monday, November 10, 2014

Estate Plans For Collectibles.....Without proper planning your treasured possessions could wind up being dumped in a yard sale.

Excerpts taken from November 1-2, 2014 Wall Street Journal

Estate Plans for Collectibles

Alex Cilento has assembled a 3,700-piece casino-chip collection - but can't find any family member who wants to take it.

The New York resident, who is 65 years old and childless, has been collecting the Las Vegas chips - which he estimates are worth as much as $500,000 - for more than two decades.  No one in his family has expressed any interest in his passion for Las Vegas history or chip collecting, he says.  He also is afraid they would unwittingly sell them for far less than they are worth.

Collectors can spend a lifetime amassing things like baseball cards, comic books or even casino chips, as well as art.  But they often pay too little attention to what will happen to their prized possessions after they die.

Collectors may hope their children will suddenly find a passion for all the stuff that cluttered their house when they were growing up.  They may figure another collector will pay their heirs big bucks for it, or dream of donating it to a museum that will display it for posterity.

Without proper planning, though, their treasured possessions could wind up being dumped in a yard sale.

They also could miss out on tax savings, says managing director of wealth planning at Wells Fargo Private Bank in San Francisco.

Here are some steps collectors can take whether they decide to pass along, sell or donate their collections:

  • Passing it on.  Collectors should make sure there is someone in their family who might be interested in their collections - and they also need to make sure that person can afford the upkeep, including insurance and storage, says Carol Kroch, managing director of wealth and philanthropic planning at Wilmington Trust in Wilmington, Del..  There are other considerations as well.  If some family members, but not others, are interested, how does the collector compensate those who aren't receiving the collection?  If everyone is interested in the collection, do you split it up?  If so, does that affect its value?  Finally, if no one can afford the costs of keeping the collection, can the collector afford to leave an endowment to maintain the collection?  To answer these questions, the collector would first need to have the collection appraised both as a single collection and as several smaller collections, to see what the impact on its value would be, Ms. Koch says.  The collector also would need to look into long-term storage and insurance costs, to decide how much of an endowment would be needed to cover those costs.   Often, trusts are used to hold the collection, either during the collector's lifetime or transferred to a trust at death.  
  • Selling it.  Some people simply choose to sell their collections.  They first need to determine the collection's fair value, using an independent appraiser.  Note that collectibles are taxed at the higher capital-gains rate of 28%, and the sale also may be subject to other costs, such as commissions and shipping.
  • Donating it.  It isn't always so easy for donors to find charities willing to take their collections.  Even if you find one, it might require an endowment fund to maintain the collection.  If collectors want to make gifts during their lifetimes that would be deductible for income-tax purposes, they need to consider the value of the collection in light of their adjusted gross income, or AGI.  In addition, the charity must use the donated property for a related purpose or the donor won't be permitted a full fair-market-value deduction.  



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