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The Fine Art Of Planning For Collectibles

        Do you have an eye for works of art? Or do you collect rare coins, antiques, or other items? If so, you’re not alone. We’ve become a nation of collectors. And this passion is especially pronounced among high net worth families.

According to Randy Fox, founder of Illinois-based InknowVision, a consulting firm specializing in wealth transfer planning, almost a third of people with a net worth of more than $10 million own some kind of collection. Fox says such assets usually represent about 10% to 20% of a person’s net worth.

To make the most of collectibles as financial assets, Fox suggests these four steps.

1. Take inventory.Figure out what you have and what it’s worth. Record the cost basis of each piece and its current value. If necessary, establish a chain of title to confirm your ownership.

2. Review insurance coverage.Fox finds that collections are often underinsured, exposing owners to unnecessary risks.

3. Specify assets to be sold when you die. What items would you permit your heirs to part with, and which family heirlooms would you like to be kept forever?

4. Focus on financial goals.What are your ultimate objectives with respect to your collection? This step typically includes methods for minimizing potential estate and gift taxes, and might include vehicles such as a:

Family limited partnership (FLP).Here, you set up a limited partnership, transfer the collection to it, and name family members as limited partners. You’ll need to have the value of the assets appraised for gift tax purposes; because there’s no ready market for FLP shares, their value can be discounted, reducing your tax liability.

Intentionally defective trust (IDT).With this setup, you also transfer the collection into the trust, but you intentionally violate the rules for grantor trusts so that income from the trust is taxed to you, not the trust. That further decreases your taxable estate while preserving the assets for your heirs.

Charitable remainder trust (CRT).A CRT provides income to your designated beneficiaries until the end of a specified trust term, after which the assets go to the charity. You get a charitable deduction for the transfer and the payments provide liquidity.

        Charitable lead trust (CLT).
This is the flip side of a CRT. The charity receives income during the trust period, then your collection reverts to your designated beneficiaries at the end of the trust term. Although there’s no tax deduction, assets can be transferred at little or no tax cost.

  This article was written by a professional financial journalist for Legend Financial Advisors, Inc. and is not intended as legal or investment advice.



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