Hard assets come in many forms. Collections such as coins, stamps, guns, or dolls are most common. Other hard assets include gold, art, and valuable antiques. Many of these assets were purchased intentionally with a purpose. Often, these assets were obtained through inheritance. Either way, you must decide what you want to have happen should you lose the ability to manage them or in the event of your death.

There are four options on disposing these assets and each has benefits and drawbacks:

• Give them away to family or friends
• Die with them as part of your estate
• Sell them
• Donate them to charity

Valuing Your Hard Assets

Before deciding how to handle your hard assets, it is important to know the current value and the “basis” of the asset. The basis is what you paid to acquire the asset. If you do not know the basis or cannot reconstruct what you paid for the asset, the IRS will determine that the basis is zero. This is important for tax reasons.

If you sell a hard asset, you must pay capital gains tax on the amount you earn above basis. The current capital gains rate on collectibles is 28%. If your ordinary tax rate is less than 28%, you will pay ordinary income tax rate instead.

If you hold your collection until you die, it will receive a “step up in basis” which means your family will inherit it at the value the day you die. Family members can turn around and sell it the next day and not pay any taxes on that asset.

If you gift your asset to family or a friend while you are alive, they do not get a step up in basis. The basis is the same as what you paid for it, so they will have to pay taxes on any gain at the sale of the asset.

Giving Your Hard Assets Away Or Bequeathing Them To Family Or Friends

Collections that you have worked hard to complete through your life may mean a lot to you, but not as much to other family or friends. If there is someone who will appreciate your collection, then it may be best to give it to them. However, you must take taxes into consideration.

If you gift your assets to family or a friend while you are alive, they do not get a step up in basis. The basis is the same as what you paid for it, so they will have to pay taxes on any gain at the sale of the asset.

If you hold your collection until you die, it will receive a “step up in basis” which means your family will inherit it at the value the day you die. They can turn around and sell it the next day and not pay any taxes on that asset.

If you have a valuable collection that you plan to hold until death, this is best placed in a living trust so that it will not need to go through probate when you die. Be certain to specify who you want to receive the collection, as splitting a collection can be very difficult.

Whether you decide to give away your collection while you are alive or bequeath it to a certain person after you die, document the history of the collection, the price you paid for each piece, and the current value. For a family member who becomes a collector, this will provide great memories and good information should they ever decide to sell the collection.

Selling Hard Assets

If you sell a hard asset, you have to pay capital gains tax on the amount you earn above basis. The current capital gains rate on collectibles is 28%. If your ordinary tax rate is less than 28%, you will pay ordinary income tax rate instead.

If you decide to sell your hard assets, it is important to do this in a smart fashion. Catalog your collection, find a reputable dealer and send them your inventory list, and once you find a dealer who is interested, send them your collection. Make certain that you insure your collection before sending it to the dealer.

Gifting Assets To Charity

There are complicated tax rules in gifting a collection to charity. If you give the collection to a charity that is in the business of using that collection, you will get a deduction of full market value. An example is giving a piece of art to a museum that will display the art. If you give the art to a charity that is in the art business, then you only get to deduct the basis of your piece. An example is giving a piece of art to the March of Dimes.

This rule applies to all collections, and although there are charitable organizations that focus on stamp or coin collections, the choices are limited. Talk with a tax advisor when considering such a donation.

Summary of important steps for collections:

• If you plan to keep the collection until your death, consider placing it in a living trust to avoid probate.
• Catalog your collection, including documenting basis, current market value, and history of each piece in your collection.
• Identify whom you want to receive the collection. Share the history and value of the collection with that person before you lose the ability to do so.