How to work antiques and other valuable collectibles into your estate plan

When Bill Ringham met with a client to discuss updating an estate plan, the client mentioned the painting he inherited from his grandparents.

“The client told me his mother recently reminded him that the painting is not just another picture on a wall but a family heirloom that’s possibly valuable,” says Ringham, director of Private Wealth Services for RBC Wealth Management–U.S. “People often don’t know what they have and sometimes they give away a painting or something they don’t love, without realizing it’s worth a considerable amount of money.”

That became an especially important consideration in 2020, when many people spent more time at home than usual because of the COVID-19 pandemic and used that time to clean long-neglected closets or storage. For some, that led to the unearthing of valuable collectibles, memorabilia and antiques. Due in part to these discoveries, a recent boom in buying and selling collectibles has led to a spike in prices.

Sales of collectibles in the United States increased 142 percent in 2020, according to eBay, with non-U.S. sales surging 162 percent. Some spectacular sales captured media attention and sent more people searching for treasure in their storage bins. Examples included a rare 1952 Topps Mickey Mantle rookie card that broke baseball card sales records when it sold for $5.2 million in January 2021, and a rare Wayne Gretzky rookie card that broke hockey card records when it sold for $3.75 million in May 2021.

Of course, those are just extreme examples. Not every collectible is going to fetch that much of a return, but your piece of art, antique car or rare Pokémon card could still have plenty of value. And no matter what you might have in your possession, if it has value then you should consider incorporating it into your estate plan, explains Liz Jacovino, a wealth strategist with RBC Wealth Management–U.S.

“Before you do anything, it’s important to understand what you want to happen to your collection,” Jacovino says. “If you’d like your heirs to have it, you may want to ask them if they want it first. Or you can consider selling part of the collection and keeping one or two items for heirs who want them.”

Valuation for collectibles

While some avid collectors track the value of their trading cards or rare books, many people lack information about the value of what they own or inherit and may not know where to start.

“If you find something you’re not sure about, especially if you don’t know if it’s worth $10 or $1 million, you need to find a valuation expert who handles that type of asset,” says Jacovino. “Many collectibles, such as coins and trading cards, are valued based on their grade, so you can start by investigating grading services.”

If you have an old car, you could begin the valuation process by contacting an automobile club or a group with an interest in a particular brand of car. Similarly, an auction house is a good source for experts on art, antiques, silver, china and other collectibles.

No matter what you own, Ringham says, “at a minimum, you should go online and do some research before selling anything at a garage sale or giving it away.”

Protecting your collectibles

Depending on the value and condition of an item or a collection, you may need to invest in special storage, such as a glass case, safe-deposit box or secure garage to maintain the item’s condition.

“That may include extra insurance coverage for special items such as art and jewelry,” says Ringham.

If storage and insurance are significant expenses to protect the valuable item, you may want to plan for that in your estate to assist the next generation’s ability to defray those costs. For example, you could purchase a life insurance policy in an irrevocable trust to provide liquidity for your heirs to help them pay estate taxes and the cost of maintaining your collection, Ringham explains.

Options for distributing your collectibles

Once you understand what something is worth and have taken steps to protect it, you can weigh the different options of what to do with it as part of your estate. These include sharing it with your heirs, donating it to charity, or selling it to generate liquid assets for your estate. In deciding which option is best for you, careful planning is required to maximize benefits, minimize family drama and mitigate tax burdens.

“Tangible personal property can be incredibly sentimental,” says Ringham. “For family harmony, it’s best to have a clause in your estate documents that refers to a written list that designates what goes to each person. If an item has significant financial value, such as a collector’s car worth $100,000 that one of your kids will appreciate more than the others, then you can give $100,000 in cash or other assets to the other kids to equalize the inheritance.”

You can choose to gift the item either upon your passing or while you’re alive, but there are pros and cons of each option you would want to weigh, including both tax and sentimental considerations.

“If you give something to someone now, you get to see them enjoy it,” says Jacovino. “You can’t measure that pleasure with numbers.”

If the item is valued above the gift-tax exclusion of $17,000 per person per year, you’ll need to file a form with the IRS. The value of the gift will be counted against your lifetime estate-tax exclusion of $12.92 million per person and $25.84 million per couple.

There is also a monetary benefit of gifting while you’re alive: You’re removing the growth of that asset from your taxable estate, Jacovino explains.

But if none of your heirs wants your art, silver, china or other belongings, you can also donate some items to charity and receive a charitable tax deduction.

“For example, there can be a tax benefit to donating your art to a museum,” Jacovino says. “If your art is valued above the estate-tax exemption, you also get the benefit of reducing the size of your estate when you remove some or all of a valuable collection.”

Or, rather than donating something to charity directly, you can also sell it and then contribute the proceeds. In that case, you’re limited to the standard charitable deduction rules, Ringham explains.

Selling your collectibles

Instead of distributing your collectible to your family, another option is to simply sell it and keep the assets for your estate. And while a multimillion-dollar sale of an old baseball card can be tempting, keep in mind that sales of collectible items are in a special tax category.

“When you sell collectibles, the capital gains tax rate is 28 percent, compared to a 20 percent capital gains tax on marketable securities,” says Jacovino.

That capital gains tax can be an important reason to consider making your collectibles part of your estate rather than selling them.

“If your heirs inherit an item from you, they have a step-up cost basis that can reduce the capital gains tax,” Jacovino says. “For example, if you bought a painting for $25,000 and it’s now worth $200,000, you would owe $49,000 in capital gains tax on the $175,000 profit. If you leave it to your heirs, their cost basis is the fair market value of the item at the time of your death. If they sell the painting for $200,000, they wouldn’t owe any capital gains.”

Whatever approach you decide to take, thorough planning can help effectively incorporate your antique or collectible into your estate, which means that your wishes for that treasured trading card or family heirloom can be followed in the future—even if you only just re-discovered it after many years.

“Whatever you find or own, it’s always wise to err on the side of checking to see if it could be valuable,” says Ringham. “If it is, you need to address it in your wealth and estate plan.”