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WHO IS ERIC NEWMAN AND WHY IS IT BAD TO DIE WITH A $60 MILLION RARE COIN COLLECTION IN YOUR ESTATE?

7
Dec

By Jason Stern

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Mainly there are two types of assets in an estate, liquid assets and fixed assets. Liquid assets of an estate consist of cash, equities and proceeds of insurance that do not have beneficiary designations. Meaning if the account of a decedent, someone who passes away, does not have a designated beneficiary or joint account holder named on the account, the asset passes through the estate. If the asset does have a joint beneficiary then the asset passes directly to the beneficiary at the time of death and not through the estate.

On the other hand a fixed asset is an estate asset that is just that, fixed, such as a house or parcel of real estate. These are assets that are not going anywhere unlike their liquid counterparts. However, there is a lesser-known third category of NY estate assets called collectibles. These are valuables in a NY or NJ estate consisting of antique automobiles, pieces of art, antiquities, rare coins, jewelry, sculptures, writings, hoards of precious metals and stones.

As a NY estate lawyer I can tell you the sale of these items while we are alive subjects their proceeds to the collectible capital gains tax of 28%. Meaning any and all appreciation in value from the date the asset was acquired and the date it was sold will be subjected to the collectible capital gains tax of 28%. However the sale of these items after we pass is also accompanied by a stepped up basis circumventing the 28% collectible tax.

Therefore it would appear to be better to hold onto valuable collectibles until after we pass so they can pass to our heirs outside the 28% collectibles tax. The problem is any and all assets of an estate may be subject to both Federal Estate Tax and State Estate Tax of the domicile of the decedent. In New York State, any and all estate assets in excess of $1,000,000.00 are subjected to the progressive sliding scale estate tax, which ranges from 6%-16%. Coupled with the Federal Estate Tax of 40% which applies to any and all estates in excess of $5,340,000.00 per individual and $10,680,000.00 for married couples, and this could get expensive. This would be any NY wealth management lawyer’s worst nightmare.

Who is Eric Newman and why is he selling his prized collection of rare gold coins he spent a lifetime acquiring?

Eric Newman is a retired St. Louis Lawyer. Eric Newman spent his life pursuing the lucrative hobby as it turns out of collecting numismatic rare coins. His numismatic collection includes an array of rare gold and silver coins spanning 4 centuries. He began collecting coins at the age of 7 when his grandfather gave him his first gold Indian Head Cent piece, today worth $1,100.00. Much of his collection now valued at $60 million was acquired at an estate sale in the 1930’s of a collector named Col. E.H.R. Green for $7,500.00.

At first I was surprised to learn that Eric Newman recently sold 1,800 pieces, roughly a third of his prized collection, for $23 million. The collectibles included a rare quarter dollar from 1796, which Newman purchased for $100 and recently sold for $1,527,500.00. While, it is estimated that even after his recent $23,000,000.00 sale of rare coins from his collection, Newman still maintains another $40,000,000.00 of numismatic rare coins in his collection.

As an experienced NY estate lawyer I remembered Eric Newman will have to pay the collectible capital gains tax of 28% on the sale of his collection amounting to roughly $16,800,000.00. So this begs the question, why is Eric Newman selling off his life’s work, the most impressive rare coin collection in U.S. history and something that took him a lifetime to acquire?

A good NY estate lawyer will tell you the answer is simple. Eric Newman, being a retired lawyer himself and at 102 years of age knows what happens to collectible assets in your estate when you die. They are collected or marshaled, sold, the proceeds of which are distributed to your heirs accordingly. As such, knowing his $60,000,000.00 collection of rare coins would eventually be sold and subjected to the Federal Estate Tax as assets of his estate, $25 million, he found a solution to short circuit some of his estate’s tax liability. Unfortunately it meant selling off his life’s achievement and body of work.

By liquidating his collection now, paying the capital gains tax and placing the proceeds into irrevocable trusts, Eric Newman may be able to avoid a substantial portion of the estate tax his heirs may eventually inherit. Rather than subjecting his heirs to the Federal Estate Tax of 40% on the $60 million estate, his heirs may now be spared an estate tax burden of nearly $25 million.

As a NY and NJ estate lawyer, I am aware Newman’s home state of Missouri has no State Estate Tax. As such, by selling his collection and paying the $16,000,000.00 tax bill now, his estate may not trigger the 40% Federal Estate Tax burden in the future. Thereby saving his estate $9 million.

As a NY and NJ estate lawyer I am always intrigued at the clever estate strategies highly motivated individuals implement to minimize their estate tax liability. If I was Eric Newman’s estate lawyer I would have tried to convince him of this very real tax disaster looming over his estate well before he turned 102. However as a NY estate lawyer I can understand Newman’s strong connection with his coin collection and unwillingness to part with it.

Unfortunately I too have clients with collectibles in their estate, albeit not to the extent of Mr. Newman. No matter how I advise them against keeping such assets in their estate there is no convincing them. Sometimes people’s connections with the material items they acquire throughout their lives runs so deep, it can border on the obsessive.

Who would think having valuable assets in your estate could be so troublesome? Some assets are better to have in your estate than others and an experienced NY and NJ estate lawyer should know the difference. In my opinion fixed assets such as your primary residence are the best assets to have in your estate. These estate assets are afforded a stepped up basis, which wipes away any and all appreciation and capital gains tax liability the asset may have acquired. Additionally, some liquid assets such as equities are afforded a stepped up basis as well making them equally attractive NY estate assets to own.

Contending with the Federal and State estate tax is enough of a burden on your NY and NJ estate without having to worry about Capital Gains Tax as well. For more information regarding the Capital Gains Tax feel free to read our NY Estate Law September 18, 2013 blog.

If you or a loved one are thinking about planning your estate and would like to speak with a New York estate lawyer feel free to call The Law Offices of Jason W. Stern & Associates at (718) 261-2444 for a free consultation. Our Queens estate lawyers have nearly 45 years of combined NY estate law experience drafting and probating the wills for families like yours in the counties of Queens, New York, Kings, Bronx, Westchester, Rockland, Nassau, Orange, Dutchess as well as in the State of New Jersey.