I have a collection--how should I include it in my estate plan?

You may have a collection you have been passionate about and is a fun and important part of your possessions.  Collections can be quite valuable, like art, coins, stamps, train sets, firearms, vintage guitar and record collections.  Sometimes the collections have more sentimental than monetary value, such as postcards or rocks.  Regardless of its dollar value, if you have a collection, it should be included in your estate plan.  Making arrangements in advance will ensure the collection is handled the way you want, and that its value is maximized.  

Here are a few steps to make sure your wishes for your collection are followed: 

1.  Gather Relevant Documentation. 

If you have a valuable collection, it is important to create a catalog describing each piece, including photographs, bills of sale, and appraisals.  If you have an insurance policy covering some or all of your collection, it should be kept with your important documents. 

2.  Discuss Your Collection With Your Family Members And Loved Ones. 

Although you may have invested a lot of time and money in your collection, and may have a strong emotional attachment to it, it is not unusual for family members not to share the same passion.  Try to understand their perspective if that is the case in your family.  It is important to discuss this with them to ensure that your estate plan is designed to minimize the burden your family may face in handling the collection when you pass away.  It is important to find out from your family members if anyone would like to inherit certain pieces of the collection as a whole.  If more than one person would like to receive certain items, it is prudent to figure out a reasonable solution in advance.  This will help to avoid conflict between family members after you pass away. 

3.  Pass It On to Loved Ones. 

Your family members may not be as attached to your collection as you are.  If you do pass the collection on to them, consider giving them your permission to sell or donate it.  If one or more family members is interested in keeping the collection, consider whether to provide a cash gift to help those beneficiaries with the costs of maintaining it.  If the collection is one of your more valuable assets, take steps to ensure that other beneficiaries receive an equivalent inheritance.  For example, you could make them the beneficiary of a life insurance policy.  You could consider transferring your entire collection to a trust or a limited liability company that could manage the collection for the benefit of multiple generations. 

4.  Donate Your Collection to a Museum or Charitable Organization 

It is important to check with the organization to which you plan to donate the collection to make sure that it is able to handle housing or selling it, both of which could be more expensive than you might expect.  Some organizations may request a donation of cash accompany the bequest to offset the cost of maintaining the collection.  A donation to a public charity will be tax deductible by your estate, or by you, if you make a lifetime gift, and there are certain circumstances when even donations to a public charity will not be deductible. 

5.  Sell The Collection. 

If you would like your family to sell your collection or anticipate that they might sell it, it will be helpful to them and likely minimize delays, if you provide the names of or dealers or auction companies that specialize in the type of collection you have, as this type of information may not be easily found by those who are not collectors.  In addition, appoint an executor who is knowledgeable about the collection and its value--this will prevent the collection from being sold for much less than its actual value. 

 6.  Consider The Tax Implications. 

The Taxpayer Relief Act of 1997 lowered the maximum capital gains rate on gains from the sale of most assets to 20 percent, but left the maximum rate on gains from the sale of collectibles at 28 percent.   If you pass your collection on to a child or other beneficiary when you pass away, that person will have a tax basis in the property based on the value on the date of your death, which is a stepped up basis.  This will be the basis used to determine the amount of taxable gain and income tax the beneficiary must pay if the beneficiary eventually sells some or all of the items in the collection.  If your collection has increased in value over time, your beneficiary's tax will be lower if you wait until your death to gift the collection to them rather than making a lifetime gift.  In that case, their basis would be the amount you originally paid.   If the collection has not increased in value, you may want to consider taking advantage of the annual or lifetime gift tax exclusions to make outright gifts of your collection while you are still living.  

7.  Make Sure the Collection is Properly Valued. 

Appraisals are particularly important, because they will help your executor, trustee and family members determine the value of the collection.  Be sure to use an appraiser knowledgeable about the particular type of items in your collection.  This will ensure that these items are not sold for a price far below their actual worth or donated because their true value is not known.  Also, it will help you make decisions about how to provide equitable gifts to your beneficiaries and whether to make gifts from your collection during your life or at death.  

Under federal tax laws, if the value of your collection exceeds a certain level, the estate must obtain an official appraisal for valuation purposes that will provide a value as of the date of your death.  According to the IRS, a collectible includes works of art, rugs, antiques, any metal or gem, with exceptions, any stamp or coin, with exceptions, valuable alcoholic beverages or any other tangible personal property that the IRS determines is a "collectible" under I.R.C. Section 408(m).  The IRS defines the fair market value of art and collectibles as the price at which the property could change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts.  If the collectibles have marked artistic or or intrinsic value of a total value in excess of $3,000.00; for example, jewelry, furs, silverware, paintings, etchings, engravings, antiques, books, statuary, vases, oriental rugs, coin or stamp collections, the appraisal of an expert or experts, under oath, shall be filed with the estate tax return along with a statement by the executor that the list of collectibles is complete and the appraiser is qualified.  In addition to the factors discussed above, determining the value of your collection is important to avoid tax penalties for undervaluing or overvaluing the size of your estate.  

I can help you design a plan for your special collection. 

Your collection likely means a lot to you.  I can help you think through your goals and develop an estate plan that will allow you to know that your collection will be handled according to your wishes, even after you pass away.  Please call me at 307.200.1914 to schedule a meeting.  I offer a free consultation by phone or videoconference if you prefer.