Dear Ernie and Jannette,
I have a huge collection of clown dolls that I haven’t had appraised, but I know are worth a lot based on Internet research. My adult children don’t want them because my grandchildren think they look creepy. How should I handle them in my Estate Planning? Thanks for your help
Thea Arcrepee
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Dear Thea,
How to handle a personal collection is a difficult situation many people encounter. Often the owner has devoted a lot of money to these assets, they likely have consumed time and attention, and there probably is an emotional investment as well. The collection also could be valuable, as you mentioned.
It is wise to begin planning for the fate of your collection early. There are several options for handling it and similar personal interests in your estate plan. Here are a few:
Charitable donation: Collectors often assume that they’ll find somewhere to donate a valuable collection, such as a museum or another non-profit organization to put on display for the public. However, many museums and charities have more items than they can display.
It might actually even cost you money to donate your items! That’s right. It costs a museum or other non-profit money to accept items into inventory, store them, provide security and maintain them in good condition. Many of them will want the collection to be accompanied by a cash donation that can be used to maintain the collection.
If you do find a place that is willing to take your collection, donating it is a good way to get a tax deduction. You can deduct in the year of your gift an amount up to 30% of your adjusted gross income. If the amount of the donation exceeds 30% of your AGI, the amount you can’t deduct this year can be carried forward and deducted in the same way for up to five years or until the deduction is exhausted.
Selling the collection: You also can sell the collection or direct that your executor sell it. But keep in mind that unless there is a demand for your items, it might take some time to find a buyer willing to pay something close to fair value.
If your executor is not too knowledgeable about your collection, you could direct the him or her to work with a dealer to manage the sale. In such a sale, the dealer would take possession of the items and have a reasonable time period to liquidate the collection. The dealer then deducts a commission, submits the rest of the proceeds to the estate and provides an accounting.
You also should maintain a written or computerized inventory of your collection and compile as much documentation as you can to help establish the maximum value of the items.
If you plan to sell the collection yourself, note that the IRS taxes profit as ordinary income and not at the potentially lower capital gains tax rate.
Handing it down: Most collectors hope that a younger family member or friend has as much interest in the collection as they do and will keep it going. In that case, you can bequeath the collection to that person upon death in your trust (don’t even think about using a will to distribute a collection upon death, as many states require your executor to itemize and account for every single item in your collection — imagine someone with a large stamp or coin collection and the nightmare of their executor having to account to the court for every single stamp or coin).
Unfortunately, as in your situation, finding a friend or relative who wants your collection is probably the least likely outcome.
If plans change and you do end up handing down the collection, decisions can’t be made until the collection is appraised, so be sure to do that first. Then, you need to estimate the annual costs of maintaining the collection. With that information, you can start to decide if it is feasible to keep the collection among friends or family.
Hop this is helpful,
Ernie and Janette
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