Clint and Nate’s recent podcast discussion about “pens” (and valuable pens versus non-valuable pens), the recent sale of a $31 million dollar Patek Phillipe watch, conversations with clients who may own valuable equipment personally for their professional lives (musical instruments, for example), and binge watching of “Antiques Roadshow” in response to the ongoing Hoth-like conditions in Wisconsin, have all contributed to this week’s blog post, which is about how to incorporate hard assets into your financial plan. By “hard assets,” I mean things with value that aren’t the common things included in financial planning: jewelry, art or antiques, and other similar items.  

Like many children of the 1980s, I thought I would be financing my retirement through my excellent baseball card collection. However, that investment didn’t pan out (I’m looking at you Gary Sheffield and your 1989 Topps Rookie Card) and this demonstrates the risk of counting on certain hard assets for retirement. Indeed, this blog post isn’t intended to encourage banking your retirement on Beanie Babies, but rather to encourage thinking about how incorporating these assets into your financial plan as part of insurance, estate planning, etc.  

As a quick overview of tax, it is important to note that many of these items are considered “collectibles” and that any gains would be taxed at 28% in the United States. As many items do not feature a defined cost-basis as well, an item inherited will receive the step-up in basis and this could reduce potential tax charges, whereas gifting an item preserves the original basis.  Additionally, for items that require maintenance, it is always a good idea to keep service records, as this can help reduce taxes owed.

In the realm of estate planning, there can be all sorts of interesting complications, but an often overlooked important detail is to separate out items with sentimental value from those with material value— indeed, my Grandmother’s most valuable piece of jewelry was a piece that held zero sentimental value, was fairly ugly, but was quite valuable due to the price of gold at the time. It was sold, melted down and the value incorporated into the estate without objection. That said, should a piece with material value have sentimental value for one member of the family, but not another, a battle could arise should the material value side clash with the sentimental value side. In these cases, the owner of the item should include directives in the will for items that respect their sentimental wishes, while also realizing the item has material value and ensuring that no one will feel shorted by not getting the item.  

A second factor that is often not considered is insurance, but the insurance step can often be incorporated with the estate planning step and help protect these valuable assets through an assessment. As anyone who has watched “Antiques Roadshow” knows, an assessment will include an “insurance” value. Should the item have a particularly large value additional insurance will be required to protect against damage or theft as many homeowners policies only protect items worth up to a certain amount (particularly jewelry which is easily stolen) and more valuable items will require disclosure within the homeowners policy and additional premiums. Should the item be particularly valuable or unique a separate policy will be required. 

There are many more factors surrounding these items and the advisors at Walkner Condon are happy to talk about the multiple issues surrounding your financial lives.

Keith Poniewaz