Have ever watched the TV show Pawn Stars or a similar show? If yes, then you know how difficult it can be to get the full appraisal value when attempting to sell rare items. Such is the connundrum faced when dealing with rare items and collections.
Someone will bring in a rare item. The pawn store owner will call in an expert to appraise the item. The appraiser will give an approximate value. The store owner will offer to pay half the appraised value of the item.
Obviously, a pawn shop is not going to pay full price for anything.
However, the spiel that the store owner often gives contains valuable lessons beyond their entertainment value. He explains to the customer that the appraisal value is how much the item might get at auction, but that it has to be the right auction with the right buyer and that in this economy nothing is going at auction for the full appraisal value.
This has implications for estate planning, too.
For tax purposes the IRS considers assets worth their appraisal value and not the amount they "might" garner at auction. For instance, if you have a piece of art appraised at $5 million for which your heirs may only fetch $3 million at auction, then your heirs might have to make up the difference from other assets when it comes time to settle up with the IRS.
A recent Wills, Trusts & Estates Prof. Blog article, titled “Rare Collectibles May Not be the Best Estate Plan,” illustrates the point with the case of a stamp collection appraised at $20 million that sold for less than half that amount.
Before you leave your collection to your heirs, it is important to consider how they will pay taxes on the collection. Even if the collection is sold to pay the taxes, the proceeds from the sale may not be enough to pay the tax bills.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website.
Reference: Wills, Trusts & Estates Prof. Blog (June 24, 2014) “Rare Collectibles May Not be the Best Estate Plan”