January 1, 2020

Have you remembered to include a personal collection of items in your estate planning? Whether it’s art, coins, stamps, or something else altogether, you’ll make things much easier for your loved ones and ensure that your collection gift is meaningful.

If your collection has in any way accumulated or appreciated in value and you decide to sell it or and pass it on to someone else in your family who sells it, capitals gains taxes might apply. It should be reported to the IRS if the collection is sold. Capital gains taxes are set at a firm rate and if the IRS gets wind that a sale was not reported appropriately, civil or criminal penalties can be assessed.

When an item or a collection like that is sold and it has appreciated in value, this is the only time that the taxable event applies. If you simply give your stamp collection to your kids and they keep it, that’s not a taxable event.

But the tax burden that applies at the time of a sale is effectively transferred over to the person who receives the collection and opts to sell it. Taxes are due on the amount from which the sold item value differs from the original value.

One important thing to remember is that if you decide to pass on the collection to your kids or some other heirs at the time of your death, a step up in basis applies. The tax basis then becomes the value at the time of the death. It’s likely that this step up in basis could eliminate the taxes due or reduce it sufficiently, but you’d need to speak to your financial advisor about that.

Always engage a financial advisor and a team of other professionals so that you understand each possible implication of your overall estate plan.