Cash in Your Coins second edition expanded
- Published: Sep 16, 2014, 7 AM
Taxes. No one wants to pay them. But the reality is they exist.
As a collector, neither you nor your heirs should pay more than is legally required. To ensure that you and your heirs don’t overpay requires action now, not later (after you depart planet Earth). Awareness and good planning are the keys to peace of mind for you and protection for your heirs.
The second edition of Cash In Your Coins — Selling the Rare Coins You’ve Inherited just released by Whitman Publishing includes a new 16-page chapter devoted to the subject of “Taxes.”
Here we are sharing an excerpt from that chapter that provides some very basic information.
First, however, a disclaimer: The following information regarding the various types of taxes is general in nature and should not be construed to be legal advice regarding taxes. Rather, it is provided to make you more aware of possible taxes related to your estate or coins and collectibles you may inherit or sell. For specific advice regarding your circumstances, it is best to consult your accountant, an attorney specializing in taxes, or an estate-planning professional.
Probate, the procedure for settling the estate of a deceased person, is conducted in and according to the laws of the state in which the deceased maintained legal residence. Probate retitles a deceased person’s property and puts it into the designated beneficiary’s name.
If the deceased person had a will, he or she probably named a person or persons as executor or co-executors. If no one is named executor in the will, the probate court names an administrator (who functions the same as an executor).
The value of the estate is important in determining whether it is subject to various taxes.
Some states require the executor or administrator, within 90 days of being appointed by the court, to prepare what is referred to as the 90-day inventory. The 90-day inventory lists all property and assets of the deceased and declares a current fair market value of the items. If there are questions regarding values listed on the 90-day inventory, they must be resolved by the time the final inventory is filed with the court.
The final inventory is used in distributing assets of the estate to those named in the will. If no will exists, the estate is distributed to heirs according to state statute (such a situation is called intestacy, and the estate is said to be intestate).
Federal estate tax
Property (cash, real estate, stocks and other assets, including precious metals, coins and other numismatic holdings) owned by a person at the time of his or her death becomes what is known as the “decedent’s estate.”
When an estate is transferred to heirs, the federal government may collect a federal estate tax.
The tax is owed by the estate of the deceased person and is paid by the estate prior to the transfer of the property to recipients or heirs. Those who receive money or property from an estate are not required to pay the estate tax, nor do they pay any income tax on the value of the inherited property.
The estates of most Americans do not require the filing of a federal estate tax return (IRS Form 706—Estate Tax Return) because the combined estate’s gross assets and prior taxable gifts do not exceed the exemption established by the American Taxpayer Relief Act of 2012. This established the federal exemption threshold at $5 million per individual, and a maximum tax rate of 40 percent above the exemption.
The exemption is subject to indexing annually for inflation. For individuals who died in 2012, the exemption was $5.12 million; in 2013, it was $5.25 million; and in 2014, $5.34 million.
According to the Urban-Brookings Tax Policy Center, only 1.4 out of every 1,000 estates (0.14 percent) owed any tax in 2013.
The Tax Policy Center’s research reported in 2013 that 99.86 percent of estates owed no federal estate tax and that among the 3,780 estates that paid tax, the “effective” tax rate — that is, the percentage of the estate’s value on which taxes were paid — averaged 16.6 percent.
All properties left to tax-exempt charities are not subject to federal estate tax. All property left to a surviving spouse passes free of federal estate tax.
With the U.S. Supreme Court’s 2013 decision (United States v. Windsor), this provision is now applicable to validly married same-sex couples. (The marital deduction is not applicable to property left to noncitizen spouses, but the personal tax exemption can be used for property left to noncitizen spouses.)
The American Taxpayer Relief Act of 2012 made permanent the “portability” of a deceased spouse’s unused federal estate-tax exclusion. The provision was initially enacted as part of the Tax Relief, Unemployment Reauthorization, and Job Creation Act of 2010, effective for married persons dying on or after Jan. 1, 2011, and would have ended Dec. 31, 2012, had it not been made permanent by the ATRA of 2012.
Portability allows a surviving spouse to use a deceased spouse’s unused estate-tax exclusion. In practical terms, for married persons dying in 2011 or later, if a first-to-die spouse has not fully used the federal estate-tax exclusion, the unused portion (known as the Deceased Spousal Unused Exclusion Amount) can be transferred or “ported” to the surviving spouse.
For both federal gift and estate-tax purposes, the surviving spouse’s exclusion is the sum of his/her own exclusion plus the first-to-die’s ported DSUE amount.
Using portability, it is effectively possible to qualify and use the maximum total exemption, if the first to die has not used any of his/her federal gift-tax exemption.
For example: A husband, John, and wife, Mary, are both U.S. citizens. John owns property valued at $5.34 million and Mary owns property valued at $5.34 million. John dies in 2014, leaving his entire $5.34 million estate to Mary, and has not used any of his federal estate-tax exemption.
Since all of John’s assets were transferred to Mary, his spouse, Mary’s exemption in 2014 (for gift and/or estate-tax purposes) is $10.68 million. Mary could make gifts up to $10.68 million in 2014 and fully shield her estate from federal estate taxes.
In order for the surviving spouse to be able to use the DSUE amount, the executor of the first-to-die’s estate must make the election on IRS Form 706, the same form that is required for estates exceeding the federal estate-tax exemption, and file it in a timely manner.
For estates with a gross value large enough to require the filing of a Federal Estate Tax return (IRS Form 706), the return (including an itemized appraisal) must be filed within nine months of the date of death. (If good cause can be shown, extensions of various lengths are available to file the return or to pay the tax, but interest accrues. Penalties may be assessed against the estate if the federal estate tax is not paid when due and extensions are not obtained.)
Federal law also requires an executor to submit an appraisal of assets, even if no federal estate taxes are due. The appraisal must be conducted within nine months of the date of death, with values to be determined as of the date of death at “fair market” value.
Fair market value is defined by the IRS as “the price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts.”
Expert appraisals are suggested for tangible property, such as works of art, jewelry, precious metals, or coin and stamp collections. The IRS requires a professional appraisal if any one item is valued at more than $3,000, or any collection of items is valued at more than $10,000.
If your estate will be large enough to trigger federal estate tax, you should obtain advice from an experienced estate-planning professional who can help you sort through your options. There are a number of estate-planning tools you can use to reduce estate-tax liability.
State ‘death’ taxes
Many people think all “death taxes” are the same. That is, they use the terms “estate tax” and “inheritance tax” interchangeably, believing they are the same. However, these are different and they are not interchangeable. In fact, two states (Maryland and New Jersey) collect both an estate tax and an inheritance tax.
Estate tax (whether federal or state) is based on the net value of property owned by the deceased. The tax, if any is due, is paid by the estate and must be filed and paid before the estate can be closed or property transferred to the beneficiaries. Estate tax has nothing to do with the person who inherits property.
The good news is that the trend over the last decade among states has been to abolish state estate taxes.
Currently, only the District of Columbia and 14 states collect estate taxes. All states that collect estate taxes and the District of Columbia have exemptions, meaning that estates valued below a certain threshold are not taxed. The exemptions vary, as do the rates applied to values above the established exemption.
Inheritance tax is usually mandated and collected by state governments, although in at least one state (Nebraska) rates are set and collected by counties and administered locally.
Currently, inheritance taxes are collected in seven states. Inheritance tax rates vary widely depending on the person inheriting the property and his or her kinship to the deceased. In some states spouses are exempt from paying inheritance tax.
In a number of states lineal heirs are exempt or pay a lesser amount of inheritance tax. Some states distinguish lineal descendants (children, grandchildren, great-grandchildren) and lineal ascendants (living predecessors, including parents, grandparents, great-grandparents).
Some states now include exemptions for civil-union partners. Rates can also vary, depending on the value of the property inherited. For example, New Jersey has graduated rates from 11 to 16 percent on property valued above $500. There is no New Jersey inheritance tax imposed upon parents, grandparents, children and their descendants, spouses, civil-union partners, domestic partners or charities. New Jersey provides a $25,000 exemption for siblings, sons-in-law, and daughters-in-law.
Check the accompanying chart and notes. Identified are the District of Columbia and the 14 states (as of April 2014) that collect estate taxes as well as the seven states that collect inheritance taxes. The notes provide brief details about exemptions and rates.
If you do not live in these states or the District of Columbia, you probably will not have to worry about estate taxes or inheritance taxes for your estate.
However, it is entirely possible that you may inherit property from someone who had legal residence in one of the states or the District of Columbia at the time of his or her death.
Also, be sure to check from time to time the status of the state in which you reside. Tax laws can be changed quickly through legislation signed into law.
Further notes on states that have estate, inheritance taxes
??Connecticut Estate Tax: Progressive rate of 7.2 percent for estates valued at $2 million and higher; 12 percent maximum above $10.1 million.
??Delaware Estate Tax: $5.25 million exemption; maximum rate 16 percent.
??District of Columbia Estate Tax: Estates valued at more than $1 million taxed; maximum rate is 16 percent.
??Hawaii Estate Tax: Estates below $3.6 million exempt. Tax rates range from less than 1 to a maximum of 16 percent.
??Illinois Estate Tax: $4 million exemption beginning in 2013. Maximum rate is 16 percent.
??Iowa Inheritance Tax: Rate ranges up to maximum of 15 percent for estates valued at $25,000 or more. No taxes for surviving spouse, stepchildren, lineal descendants, or lineal ascendants.
??Kentucky Inheritance Tax: Spouse, parent, child, grandchild, siblings exempt. Other beneficiaries subject to tax, ranging from 4 to 16 percent.
??Maine Estate Tax: $2 million exemption; above $2 million rate ranges from 8 to 12 percent.
??Maryland Estate Tax: Estates exceeding $1 million taxed; maximum rate is 16 percent.
??Maryland Inheritance Tax: Property passed to individuals other than spouse, lineal descendants, lineal ascendants, sibling, or spouse of child is taxed at 10 percent.
??Massachusetts Estate Tax: Below $1 million exempt; ranges from 0.8 percent for $1 million to 16 percent for estates exceeding $10.04 million.
??Minnesota Estate Tax: $1 million exemption. Maximum rate is 16 percent.
??Nebraska Inheritance Tax: Local tax administered by counties; ranges from 1 to 18 percent. Spouse and charities exempt.
??New Jersey Estate Tax: Estates exceeding $675,000 not passing to spouse or civil-union partner taxed; 16 percent maximum tax.
??New Jersey Inheritance Tax: Graduated rates from 11 to 16 percent on property valued above $500. No tax for parents, grandparents, descendants, children and their descendants, spouses, civil-union partners, domestic partners, or charities. $25,000 exemption for siblings, sons-in-law, and daughters-in-law.
??New York Estate Tax: Estates exceeding $1 million; ranges to maximum of 16 percent.
??Oregon Estate Tax: Up to $1 million exempt. Rates range from 10 to 16 percent for $1 million up to $9.5 million. Maximum rate is 16 percent.
??Pennsylvania Inheritance Tax: 4.5 percent for lineal heirs, 12 percent for siblings, 15 percent for other heirs (except charitable organizations, exempt institutions, government entities).
??Rhode Island Estate Tax: $910,725 exemption for 2013; adjusted each January for inflation. Maximum rate of 16 percent.
??Tennessee Inheritance Tax: State defines tax as an inheritance tax. However, law taxes property instead of heirs. Based on value exceeding $2 million exemption in 2014 and $5 million exemption in 2015; rate ranges from 5.5 to 9.5 percent. Inheritance tax to be phased out as of Jan. 1, 2016.
The 304-page expanded second edition of Beth Deisher’s book Cash In Your Coins: Selling the Rare Coins You’ve Inherited, published by Whitman Publishing, was to be available Sept. 13 online (including at Whitman.com) and from book sellers and hobby shops nationwide for $9.95.
The first edition of the book, published in June 2013, won the Numismatic Literary Guild’s “Best Specialized Book on Numismatic Investments” award for 2014 and a first-place nonfiction award from Ohio Professional Writers.
The second edition is expanded with 16 additional pages, updated case studies, the new chapter on taxes, new illustrations and more.
Deisher wrote Cash In Your Coins to inform and protect the hundreds of thousands of Americans who already collect coins, and those who will someday inherit their collections.
Deisher is an award-winning journalist and retired editor of Coin World.
For additional information or questions, contact the author via email here.
Estate and Inheritance Taxes: States and District of Columbia (Information current as of April 2014)
State Estate Tax / Inheritance Tax
??Connecticut, Yes / No
??Delaware, Yes / No
??District of Columbia, Yes / No
??Hawaii, Yes / No
??Illinois, Yes / No
??Iowa, No /Yes
??Kentucky, No Yes
??Maine, Yes / No
??Maryland, Yes / Yes
??Massachusetts, Yes / No
??Minnesota, Yes / No
??Nebraska, No / Yes
??New Jersey, Yes / Yes
??New York, Yes / No
??Oregon, Yes / No
??Pennsylvania, No / Yes
??Rhode Island, Yes / No
??Tennessee*, No / Yes
??Vermont, Yes / No
??Washington, Yes / No
* Although defined as inheritance tax, value is based on property.
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