You know the old saying: you can’t take it with you! What happens to your vintage collection when you are gone? It’s not a fun question to ponder, but it’s necessary to consider at some point. So, read on for 8 estate planning basics all vintage collectors should consider.
(And if you do plan to be buried with some or all of your collection, tell us what and why in the Comments! This could get fun. Come to think of it, I might take this one with me. It has always put a smile on my face:)
Cardhound published articles on Baby Boomers and changing demographics among vintage collectors. Since then, I have heard from many “seasoned” collectors with questions about if or when to sell. If you are a vintage collector over 50, you have probably at least thought about questions like:
“How do I make it easy for my loved ones to deal with my collection?” “Do my kids actually want these things?” “Should I sell sooner than later and enjoy the funds in retirement?” And the list goes on.
So let’s look at some important estate planning considerations for vintage collectors.
Sell While Alive or Pass it On?
The biggest quandary many face is whether to liquidate a collection while living, or will it away upon death. There are pros and cons and differing points of view to consider. It can be hard to let things go, for sure. But it can also be satisfying to pass down your assets while still alive. Or better yet, auction them to the highest bidder and buy your retirement condo!
Sell While Living
Bloomington, Illinois attorney Todd Bugg makes a case for selling while still alive. “Collecting is an individual passion, thus the owner knows their collection more than anyone else. Therefore, I would talk with a client about the possibility of gifting cards to loved ones during life. Be aware, however, that if gifting, your cost basis is passed along to the recipient, as opposed to getting a “step-up basis” if inherited.
The other possibility is selling all or part of the collection prior to death. These options assure that the collection is not sold at a deep discount by family members who either don’t care or don’t have enough experience in the hobby to get true value.” Bugg notes however that “there are capital gains tax issues to take into account that may change the client’s plan depending on their other income and size of estate.”
If you decide to liquidate while still alive there are several options. Bugg mentions “gifting” above–which can be done over time and with no tax obligation to the recipient if done in accordance with IRS gift laws.
Beyond the gift route, avid collector / CPA / attorney Mark Raimo explains other considerations. Should you treat your collection as an active business, or a capital asset?
Active Business
“An active business likely would be set up as a sole proprietorship and reported on a Schedule C on your income tax return,” Raimo says. “This allows you to write off associated expenses–some of which are also eligible under the capital asset option, however.” Many active collectors like me already file this way, so it may be just “business as usual.”
Capital Asset
The other option is to treat cards like any other capital asset. Any cards held for more than 1 year would currently be subject to a whopping 28% capital gains tax on collectibles. Cards held less than 1 year would be taxed at your ordinary income rates, and could also be subject to additional net investment income tax (3.8%) The big key here is to keep track of cost basis and expenses. Raimo notes that the IRS allows you to include in the basis any ordinary and necessary costs involved with sale – so any supplies, shipping, commissions, or grading fees should be included in the basis.
Will to Your Heirs
Raimo makes a case for willing your collection. “Focusing solely on the income tax perspective, it could make much more sense to hold your collection until death.” For example, let’s say “you buy a Mantle in the 1990s for $100 – and it’s now worth $10,000. If you sell while you are alive you would have a $9,900 capital gain. If you pass this on, your beneficiaries will get a step-up in basis. In short, their basis in the card would be either the value at date of death or 6 months after. So your heirs will theoretically be able to sell that same Mantle for $10,000 and pay no gain on the sale.”
However, Raimo concedes the same potential benefits of selling while alive that Bugg mentions. “If you are worried your heirs will not know how to sell or sell for too little it essentially becomes a math problem. What is greater: your net gain after tax or the value they can get from the cards assuming no tax?”
And keep in mind that while you can have a great plan, we often don’t have much say in when we die. The estate planning tips for vintage sports collectors below will help you live in the present while also preparing for many possible future scenarios.
1. Make a Detailed Inventory
For many reasons, you always want to have an accurate inventory of your collection. I use the SGC app to log and track my graded cards, and I take pictures frequently. I also use Excel to maintain a detailed inventory of all valuable items. This includes all card info, condition descriptions, photos, and any related COA’s. This helps identify the items clearly and helps establish value. Keep these records handy. If your collectibles have COA or other similar documents, store these securely and ensure your heirs know where to find them.
2. Appraise and Insure Your Collectibles
- Authentication and Grading: It is so much easier for your heirs to place a value on a graded card vs. a raw card. The same goes for autographs. The value of the Hank auto above, for example, will likely double upon being authenticated at PSA or JSA.
- Appraisal: Choose wisely, because Collectibles appraisers aren’t governed by the same strict rules as, say, real estate appraisers. Your estate planner can advise what kind of appraisal will hold up in court.
- Insurance: If you insure your collection through a company like Collectibles Insurance Services, familiarize yourself with their methods of determining value in case of loss. And make sure your heirs have access to policy information so they can continue needed coverage.
3. Create a Will or Trust
A will is a necessary component of any estate plan. A trust will likely be advised if you have a complicated or valuable estate. This process avoids lengthy and complicated probate procedures.
- Will: A will is a legal document specifying who will inherit your possessions. In your will, you can clearly specify who gets each collectible. You can also set up contingencies in case the primary heir cannot accept the item (e.g., if they don’t want it).
- Trust: A trust can be a more efficient way to pass down valuables, avoiding probate, and ensuring items are handled according to your wishes. You may want to establish a living trust to pass your collectibles directly to your heirs upon your death. Your estate planner can explain the different kinds of trusts and help you decide if a trust is needed.
Who needs a trust? That depends largely on the size of one’s estate, its holdings, and state law. For example, Bugg, practicing in Illinois, notes that for an owner of a $100k collection, “because the Illinois probate limit is $100,000 I would likely recommend establishing a revocable living trust to hold the collection (and other assets if desired) to avoid probate and create an easy method of distribution at death.” But this advice will vary across state lines.
4. Consider a Professional Executor or Trustee
Managing the distribution of your assets according to your wishes is the executor or trustee’s job.
- Choose someone trustworthy: You might want to appoint a professional executor (for a will) or trustee (for a trust), especially if the collectibles are of significant value. They can manage the estate’s distribution, ensuring it follows your instructions.
- Specialized knowledge: An executor or trustee familiar with sports collectibles can be helpful for items requiring specific expertise. My own personal will contains a list of trusted contacts who can help make sure that my distribution of my collection is handled properly and in accordance with my wishes.
5. Understand and Plan for Taxes (Including Estate Taxes)
This is where it gets tricky. Many valuable assets, like real estate, are a part of the public record. On the other hand, many vintage collections are more of less “off the books”–purchased for pennies years ago and now worth thousands or in rare cases even more. But let’s face it–if your estate is subject to estate tax, 1) congrats! and 2) you are probably not seeking advice from a vintage blog. Here are a few basics for the rest of us:
- Understand tax implications: Some collectibles might be subject to estate taxes, and their value can impact the overall estate tax burden. Consult an estate planner or tax advisor to understand how to structure the inheritance of your collectibles efficiently.
- Tax exemptions or deductions: Certain items, like art or historically significant objects, may qualify for special tax exemptions. Make sure your estate plan takes these into account.
- Sell now vs. later: Some collectors decide to liquidate or even give away some or all of their collection while still alive. A tax pro can help you decide on the best strategy to maximize profit and minimize tax burden. Further, cards sold as part of a legitimate business enterprise are taxed differently than the capital gains rate you will pay on “collectibles”
6. Communicate with Your Heirs
- Discuss intentions: Be open with your heirs about which items you wish to pass down and why. Make sure they are aware of the value and significance of the various collectibles, and inform them of any special care or handling required. My kids don’t collect baseball cards–but they are market savvy due to their experience with TCG cards like Pokemon. I trust them to not get swindled–but also, someday I will need to have a serious conversation about whether they would actually want any of my collection.
- Set expectations: On the flip side, maybe multiple heirs would want your stuff! Some items might be sentimental to multiple people, and you may need to manage your heirs’ expectations regarding their inheritance. Communicating openly now can avoid hurt feelings after you are gone.
7. Ensure Proper Care and Storage
- Create a care plan: Include instructions in your will or trust for the proper storage and preservation of your collectibles. You can start now by making sure all of your collectibles are currently stored safely and effectively. Cardhound has some preservation tips here. Your heirs might want to display your autograph collection–but should know how to avoid UV damage so future generations can enjoy them, and value is preserved.
8. Secure Digital Copies
- Backup documents: Digitize and back up all relevant documents. This includes appraisals, photographs, and insurance policies securely (e.g., in a cloud storage system). Provide your heirs with access information. As I write this I’m realizing that while I have fairly meticulous records, my wife certainly doesn’t know where they are! I’m going to go work on that now . . .
By following these estate planning tips, you ensure that your collectibles are properly protected, appraised, and passed on to your heirs with minimal complications. Consulting with legal and financial professionals is essential to ensure everything is done according to federal and state laws and in the most tax-efficient way possible. If you want to always be in the loop about vintage news and articles like this one, please Join Cardhound! It’s free.
Disclaimer: This article is not intended as investment, tax, or legal advice.
