What will happen to your treasures when you pass? Collectors can spend a lifetime amassing art, coins, stamps, antiques or baseball cards but often don’t know what to do with them upon death. This story from The Wall Street Journal provides tips on how to make a plan.
People with collections may want to donate it to a museum, or hope a family member will take it or another collector will buy it, but without proper planning, their treasured possessions could wind up in a yard sale.
Alex Cilento assembled a vast and rare casino-chip collection over two decades but can’t find any family member who wants it. Cilento who is 65 and childless is afraid they would unwittingly sell them for far less than they are worth anyway.
What are collectors like Mr. Cilento to do? Here are some options:
You Can Pass It On
Collectors should find out if someone in their family wants their collection that can afford the upkeep.
But if someone is interested, how do you compensate family members who are not receiving the collection?
And if everyone wants it, do you split up the collection? Will that affect its value?
If no one in your family can afford the costs of maintaining the collection, can you afford to leave an endowment to maintain it?
The first step to answering these questions is to have your collection appraised both as a single collection and as several smaller ones. Then look into long-term storage and insurance costs to decide how much of an endowment is needed to cover those costs.
With that information, you can decide whether you can afford to maintain the collection long-term while making similar-size gifts to family members not receiving the collection.
People who want to pass on a portion of their collection while they are alive could make annual gifts to begin removing the value of the collectibles from the taxable estate. Individuals can make gifts up to $14,000 annually to anyone they wish (tax-free). You can also use part of your lifetime estate exemption ($5.34 million in 2014) to give larger gifts during their lifetimes without incurring gift tax.
You Can Sell It
Some people sell their collections. First determine the collection’s fair value, using an independent appraiser. Note that collectibles are taxed at the higher capital-gains rate of 28%.
Mr. Cilento plans to have his collection sold upon his death. He has identified a trusted chip dealer in his Will. The executor of Mr. Cilento’s Trust is to give the dealer all his casino-related items and give him 12 months to liquidate everything, take a fair commission and add the proceeds to Mr. Cilento’s estate.
Mr. Cilento also created a digital inventory of all his chips, which includes their estimated value. “I want to make things as easy as possible for my executor,” Cilento said.
You Can Donate It
The reality is it isn’t easy to find charities willing to take collections. Even if you find one, it may require an endowment fund to maintain it.
Howard and Linda Knohl aren’t sure what to do with their collection after death. The collection includes everything from paintings, rare books and historical sheet music to clocks. Knohl says he will donate most of his collection but he hasn’t found a willing recipient. “It’s time-consuming and very complicated,” said Knohl. “Some of the institutions want only part of the collection while others want a donation to store and maintain it.”
If you want to make charitable gifts during your lifetime that are tax deductible, you must consider the value of your collection in light of your adjusted gross income. Donors will need to appraise your collection and make sure to get a written acknowledgment of the donation from the charity.
Read the story here.