Friday, September 06, 2013

CRUTs, Collectibles and a Punch Bowl

For those with high incomes, Ashlea Ebeling points out in Forbes, the federal tax on long-term capital gain from the sale of collectibles, such as art or antiques, has risen to 31.8 percent. To eliminate tax the collector might use a charitable remainder unitrust. The charitable trust can sell the high-gain assets tax free, the donor may retain a generous lifetime income from the trust, and he or she gets a tax deduction for the estimated value of the trust "remainder."

Federal tax on capital gain from the sale of securities now rises as high as 23.8 percent, so here, too, selling via a CRUT might prove attractive.

One significant difference: When a donor moves publicly-traded shares into a CRUT and sells them tax free, the donor knows approximately how much the shares will fetch. A collector putting a family treasure up for auction ventures into the unknown.

To illustrate, consider this punch bowl. (We came across it while seeking an avatar for the figurative punch bowl that the Federal Reserve is about to take away). The silver bowl is venerable, made in New York around 1700-1710, only a few decades after the British renamed New Amsterdam.
Punch Bowl by Cornelius Kierstede

Descendants of a Boston Tory family put the bowl up for auction in 2010. Sotheby's expected it to sell for $400,000-$800,000. Instead, bidding escalated until only two contenders remained, one bidding by phone, the other an "anonymous bidder" in the auction hall.

Two million. Three million. Four million. Five million!

The anonymous bidder finally won the bowl for $5.9 million. That's by far the highest price paid at auction for a piece of American silver.

Wonder how a donor would feel if he or she realized such a windfall when selling via a tax-sheltered CRUT. Delight that what was expected to be a trust fund of $600,000 or so had ballooned to almost $6 million? Or remorse? "Why on earth did I tie up that much money!"
As to why the punch bowl sold for such an amazing price, that remains something of a mystery. Was it a matter of provenance? You may not know the bowl's Revolutionary-era owner, Joshua Loring, but in your school days you probably read about his pretty young wife. After the Loyalist Lorings fled their suburban home (possibly leaving the punch bowl behind) for the safety of Boston, Elizabeth Loring earned trans-Atlantic celebrity as the mistress of the British general Howe.
Note the sidebar to the Forbes article: Three Donors Tell Why They Set Up CRUTs.

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