Collectibles form a valuable part of one’s personal wealth. Collectibles can be diverse and unique, but commonly consist of jewelry, paintings, watches, rare wines, sculptures, artwork, books, silverware, stones, coins, and antiques. While it is easy to value real estate and other assets such as cars and investments for the purposes of estate planning, valuing collectibles is a complex process. Deloitte reports that correct valuation and appraisal is a key concern for most of its clients possessing collectibles. If you are considering estate planning, learn how a Colorado estate planning attorney at Johnson Law Group at (720) 463-4333 can help you with valuing your collectibles.
In order to maximize the value of collectibles as an investment, a collector may consider following these steps:
It is essential to record and preserve all important information and documents related to the collectibles. Maintaining documentation related to the purchase date and amount, from where and why it was purchased, authentication records, provenance, insurance, appraisals, and taxes is vital for estate planning and valuation purposes. One can also consider taking photographs and making notes to describe the collectibles and any special information associated with them.
Collectibles represent personal passion and interest and also hold an emotional value in addition to financial value. It is important to discuss with one’s family why the collection is important to the collector. Getting to know if the family members share the same passion for the collectibles enables an informed decision-making process for estate planning. Further, selecting an executor who will properly manage and value the collectibles is also important. Family members should also be educated about how to physically preserve the collectibles.
Having a strategy in place to minimize estate taxes related to collectibles is helpful. A clear strategy also helps in avoiding the “fire sale” of collectibles at less than fair market value to fulfill estate tax obligations. Tax planning related to collectibles consists of many options including making tax-free gifts of up to $15,000 per year, donating collectibles to a deserving charity or museum, or creating a trust funded with the collection.
Sometimes, a collector may become incapacitated due to a mental or physical illness, or may otherwise be not able to manage the collectibles due to other reasons. To provide for such circumstances, it is advisable to have a durable power of attorney in place. The collector can name an agent in the power of attorney who will manage the collectibles in accordance with the collector’s wishes when he or she becomes incapacitated. The power of attorney can be revised or revoked anytime, and it becomes null upon death.
For estate planning purposes, it is important to specifically name and include collectibles in any estate planning document. If there are multiple collectibles, clearly divide and designate them among the legal heirs. Specific instructions related to shipping and storing can also be included in these legal documents.
The Internal Revenue Services (IRS) defines collectibles to include any work of art, any rug or antique, any metal or gem, any stamp or coin, any alcoholic beverage, or any other tangible property that the IRS determines to be collectibles under IRC Section 408(m). Colorado does not impose estate tax on legal heirs of Colorado residents who passed away after January 01, 2005. However, federal tax obligations may still apply to collectibles.
The IRS considers most collectibles as capital assets and levies a capital gains tax of 28% on the sale of collectibles. For estate tax returns, collectibles valued at more than $3,000 must carry a written appraisal by a qualified appraiser. Gifts or bequests of art worth $50,000 or more should be referred to the IRS Art Advisory Panel.
A qualified appraiser is someone who has either received professional certification from a relevant organization or has the required education and experience necessary to perform appraisals. While choosing an appraiser, one must look at the certifications, experience, and prior familiarity with the collectibles that require appraisal and the relevant market. Preparing for passing down your collectibles is a challenging and complex process that requires proper valuation and tax compliance. Contact our legal team today to learn how a Colorado estate planning attorney at Johnson Law Group can help you understand all of your legal options.
As per the American Bar Association, IRS defines Fair Market Value 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. Two important things to consider while determining the fair price of collectibles are:
Some common factors that are considered while determining the fair market value of collectibles are:
The general rule of demand and supply is also applicable to collectibles. The ongoing trends may impact the demand of a particular type of collectible. Upward demand will lead to higher prices and lesser demand will lead to lower prices.
Provenance means the chain of title or past ownership of the collectibles in question. If the collectible was held by a known personality at some point in time, it may have a higher value.
The condition in which the collectible is will also have a significant impact on the fair market value of the collectible. It is therefore advisable to take proper physical care of one’s collectibles.
The more one-of-a-kind a collectible is, the higher its sale price is going to be.
Similar comparable sales from a similar market may also impact the sale price of collectibles.
Valuing and planning for collectibles while preparing one’s estate plan is a multi-step and complex process. It involves a number of aspects including taxation, fair market value, and an appropriate and defendable appraisal. If you are considering estate planning for your collectibles, contact our legal team today to learn how a Colorado estate planning attorney at Johnson Law Group at (720) 463-4333 can help you ensure your collectibles end up with the proper parties following your death.