People enjoy many hobbies, both before and during retirement. Collecting is one of them, and sometimes collections can become very valuable over time. In order to truly enjoy this hobby, it’s important that you are organized when it comes to your assets. These five steps can help you better manage and protect your valuables. Your eventual heirs will appreciate it whether they decide to continue the hobby or not.
Step #1: Simplify & Organize Your Valuables
Depending on how long and how often you’ve focused on building your collection, it’s possible you may have accumulated a significant amount. If you haven’t already, start to organize and document your collection. Gather any relevant paperwork together, as well as how much you paid for the item and its current market value (if available). If it’s been a while since the item was originally acquired, now may be a good time to work with an appraiser to help determine its worth.
Step #2: Document, Document, Document
Create an inventory and list details about each item in the document, as this will help with organization when you work with your insurer or for your eventual estate. Take as many pictures as possible and ensure they’re stored somewhere separate in case of fire or natural disaster. Record and photograph serial numbers and any other identifying information in case of an insurance claim or need to file a police report for theft.
Step #3: Insure Your Valuables
You’ll want to consider if insurance is right for you. To do this, you may be asked to provide information, including receipts or proof of purchase, authentication verification, and images.
Most homeowners policies will provide only limited protection for collectible items, so check what your insurance covers when covering valuables. Whoever provides your current insurance is likely happy to discuss additional coverage or verify you are covered under your current policy.
Generally, there are two ways to increase insurance coverage:
Raise the limit of the liability: This is the less expensive option of the two; however, the amounts are still limited for individual pieces and overall losses of the items.
Purchase a floater/rider policy: When you do this, you can “schedule” your individual valuables, and while this is more costly, it offers more protection. This covers losses that your homeowner’s insurance will not cover. But, before you can purchase this type of insurance, your valuables must be appraised by a professional.
Step #4: Understand Tax Obligations
In terms of purchasing and collecting valuables, the IRS recognizes a few different status types that can affect tax status and liabilities, such as Collector, Investor, and Dealer. Typically, collectibles will be taxed at a higher capital gains rate than normal financial assets, so make sure there are no surprises if you begin to reduce your collection.
The IRS presumes that all taxpayers are collectors, unless proven otherwise. Work with an experienced tax professional to understand your potential tax obligations.
Step #5: Determine a Succession Plan
In the event of incapacitation or death, how would you like your collectibles to be passed along to others? Will family members inherit them, or would you like your valuables donated to a museum?
These kinds of questions will need to be addressed, and Telarray can help develop a plan in concert with our trusted estate attorney or others. There is often an emotional attachment to collectibles, especially those that have been in the family for generations. Working with a professional to create a plan will help ensure that your wishes are carried out according to the ways that matter most to you. Telarray can help you enjoy your hobby without worry about the future!
