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"What Color Are Your Assets"
by Lawrence D. Goldberg

An Insiders Guide to
Rare Coins
and Precious Metals

Find out more

Read Introduction

“Tips of the Trade: Pennies From Heaven”

by Lawrence D. Goldberg, PNG and Steven M. Goldberg, Esq.

Published in California Trusts and Estates Quarterly, Issue 3, 2020)

Tips of the Trade: Pennies from Heaven

You are meeting with your client about her deceased father’s estate. After discussing his real property and liquid assets, your client tells you her father was a long-time avid collector or accumulator of coins and precious metals. She describes the collection as including what sounds like thousands of coins: plastic tubes or paper rolls of them, blue or brown books with page after heavy page of silver dollars, half dollars, and smaller denominations inserted, and 30-65 pound canvas bank bags filled with silver or copper coins of various denominations. She tells you the collection includes gold coins of varying sizes either in rolls, 2 x 2 inch cardboard or plastic sleeves, envelopes, or hard plastic cases some of which might be professionally certified. In addition, she describes gold and silver bars, old bank notes, antique coins, proof sets, mint sets or other US or foreign minted sets and commemorative coins. There might also be scrap gold, jewelry, watches, or stamps, many of which are commonly handled by Numismatic Professionals.

Clearly, you need to inventory and value this collection as of the date of death but where to turn? No license or educational achievement is required for rare coin dealers, who, like any other business, are governed only by the FTC. There is no organized rating system beyond Yelp, which isn’t really of much help. Pawn shops? Few would have the expertise to create a professional report even if you could trust the valuation. Coin shops? There are a few thousand nationwide, and while many are qualified, many operate more like pawn shops. The internet? Some good information if you know where to look, but so much mis-information it can be a real trap for the unknowledgeable. You need a professional and qualified numismatist but…where to begin?

A visit to the Professional Numismatist Guild (“PNG”) (www.pngdealers.org) website, by far the most prestigious numismatic organization, is a good start. PNG members must submit to a criminal background check, have significant assets, must agree to a code of ethics, and submit to approval by the members. As with any professional, you want someone who communicates well, explains cost of services up front, and who has experience handling large collections. Numismatic professionals on this level can generally help your client sell the collection as well. To avoid a potential conflict of interest, it is best to separate the evaluation and sales functions by having the valuation done before deciding whether the collection should be sold. However, clients may decide for practical purposes that they want both done at the same time. The situation is analogous to a real estate agent providing both valuation and sales services. Further, in both cases, the evaluation does not include the sales commission.

Once this part of the process is complete, it is appropriate to discuss the actual sale. Usually, a current cash value evaluation does not include the cost of sales, which can be significant. As a result, an offer from the Numismatic Professional to purchase the collection in bulk will likely be less than the cash value evaluation. It is not uncommon for the Numismatic Professional to refund part of the evaluation fee if he or she also handles the sale. Given this and the paucity of qualified numismatists, it may not be easy to use a different numismatic for valuation and sales purposes. You may also have to go out of your area to find one because as of October, 2019, the PNG had only 307 active members nationwide.

For the attorney, an initial task will be to determine legal title to the collection and, therefore, who has the right to make sales or distributions. Significant accumulations could easily have a value exceeding $150,000, thereby making Probate Code 13100 inapplicable. Even if the collection has a value under $150,000, it may be enough to cause the aggregate value of assets that might be transferred to a living trust using Probate Code 13100 to exceed the $150,000 limit. Is the collection already an asset of the living trust? Exhibit A of many living trusts has a generic description of tangible personal property located in the residence. This description may be enough to include a coin collection that has been kept in the house (as many are). An aggressive interpretation of that clause may well be an acceptable solution given that coins do not have title documents. Of course, broader omnibus transfer clauses may be useful as well if specific attention was not paid to the collection in the planning process. In any event, attorneys should also consider that this initial determination could have additional ramifications if tangible personal property is specifically bequeathed—did the decedent intend for the coin collection to go as part of the specific bequest? Even if the coin collection is sold, that issue still might cause a problem if different beneficiaries would inherit based on the classification of the collection.

Eventually, your client will need to decide whether to sell all or part of the collection or to distribute it to heirs (with some of the potential problems pointed out above). From a tax perspective, the accumulation, like most assets held at death receives a step-up (or, possibly, a step-down) in basis pursuant to IRC Section 1014. A post-death sale could still have gain or loss and is reportable for income tax purposes. If sold as one accumulation, the reporting requirement could be reduced to a single line item.

Like any other asset, if the estate is large enough to report, the collection will be an asset to be included on the estate tax return (listed either on Schedule F or Schedule G of the Form 706, United States Estate Tax Return, with the appraisal attached to the return).

The coin collection is tangible personal property, like many other collectibles, but perhaps has a much larger and more readily accessible marketplace given the number of collectors and dealers, and the specific mechanisms supporting the rare coin marketplace. This means that most accumulations can be liquidated within a few weeks at most. Given the ease of liquidation and the large size of market, it is unlikely that blockage discounts would apply. Therefore, as indicated, the appraisal does not adjust for the sales commission and, the estate tax rules simply require that the retail value of the coins in the public market is the value for estate tax purposes and, thus, also is used for the related step-up in basis. See Treas. Reg. 20-2031; see also Rev. Proc. 65-19 1965-2 C.B. 1002. As a result, in many smaller estates, there could be a taxable loss as the result of paying the sales commission. In a taxable estate, the sales commission may have to qualify as a necessary expense of administration under IRC Sec. 2053 in order to be deducted on the estate tax return.

If the coin collection is kept and if the trust instrument provides for sub-trusts (as might be the case if there is a surviving spouse), all of the issues applicable to other assets also apply to the coin collection. For example, the allocation as part of a pecuniary bequest to a marital or bypass trust is a realization event possibly causing gain or loss. See Kenan v. Commissioner 114 F.2d 217 (1940).

Many of the issues discussed above could be handled as part of the estate planning process if clients remember to tell their planner, or if planners remember to ask about them. Issues related to inheritance, classification and ownership are easily solved ahead of time. For large accumulations in particular it is advisable to get a valuation or at least an inventory done prior to death. First, it provides a checklist to compare what might be squirreled away in the nooks and crannies of a house: coins are small and can hide out in the strangest of places. Second, a pre-death evaluation will help determine if it is advantageous to sell prior to death or after to take advantage of the step-up in basis under IRC Section 1014. This is particularly important where original purchase receipts are available. While touted as an “investment” by many companies who pay big money to advertise, in economic terms coins are more accurately a speculation: Their value is affected by such factors as gold and silver price fluctuation and the mercurial supply and demand matrixes of the rare coin market. Furthermore, some companies charge high premiums on coins, so, while the natural price flow of the collectible coin values generally trends upward, it is possible for coins to be worth significantly less than the price originally paid.

Third, such evaluations are useful for insurance purposes, which is important primarily for large value accumulations. Most homeowner policies exclude coins above a certain nominal value. Therefore, for significant accumulations, a rider will be necessary. While coin thefts are relatively rare, they do occur, and in California in particular, as many have painfully discovered this past year, fire or other calamity can obliterate coins, destroying all value. Thus, in addition to inventory, valuations and sales, your client will also need to consider safe keeping and security. A safe deposit box is generally considered safe but your client would need to rent one (or more) and transport the collection to the bank. Coin collections can be heavy so transportation and security are important to consider. These concerns regarding physical custody are also faced after death but, at that time a fiduciary duty may apply.

While safe deposit boxes provide excellent security, clients may also want to take additional steps to make sure their personal representatives can access the safe deposit box with some ease. It might be advisable to authorize an heir to access the safe deposit box. This may require using joint tenancy, which comes with the problem that the surviving joint tenant may claim he or she simply inherits the contents. If the safe deposit box is only in the individual’s name, the typical bank will only provide access to see if testamentary documents are in the safe deposit box, assuming the personal representative actually has the key.

One final note: Numismatic professionals are not required by law to file any forms with any Federal, State or local agency when they buy or sell coins. Consequently, the onus is on the owner of the coins to take steps to comply with tax and other laws.

Note: California Trusts and Estates Quarterly is the official publication of the California Lawyers Association, Trusts and Estates Section 

Customized Numismatic Portfolios, Inc.

www. cnpcoins.com

Phone: 800 334-3325

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