Most people have heard some variation of the old adage "rags to riches to rags in three generations," where heirs squander their family's hard earned assets over time. This scenario can be partially prevented with proper estate planning controls, such as spendthrift trust provisions, in addition to multi-generational wealth transfer strategies. One such strategy, owning rare U.S. coins, may also accomplish the elusive triad: wealth preservation, growth and tax efficiency. Wealth Preservation Rare coins are historically significant collectibles that have a finite supply, high demand and subjective value that is not correlated to traditional investments and precious metals. When investors with holding power own exclusive rare coins they are in a strong position to preserve wealth because they own intrinsic value. Availability becomes more important than price in this private market. Therefore, investors who own rare coins can comfortably hold their rare coin portfolios during turbulent markets and mitigate risk from severe wealth-destroying events. Further, it is extremely important to own assets with transparency. Third parties grade, authenticate and guarantee each rare U.S. coin, thereby mitigating the risk of total capital loss due to fraud, which is pervasive in other collectible markets. Therefore, investors who have holding power are positioned for long-term wealth preservation in all market cycles as they comfortably wait for the right future buyers. Growth Despite an extremely high barrier to enter the top tier of the rare U.S. coin industry, perhaps the best method to grow a portfolio is to own rare coins at the right price level. Pricing information can be found online going back several decades, allowing investors to hold their rare coin asset manager accountable. It is also important to select a highly reputable asset manager known to control a large inventory. These elite managers serve as a choking point in the industry since only they know the location of these private assets. Becoming their client is not a guarantee, as these managers are highly selective with whom they do business. However, if you are lucky enough to become a client, this handful of elite managers are in a strong position to negotiate profitable deals on your behalf. Thus, when a future buyer must own a specific rare coin that is only available through very few sources, an investor with holding power is in a very powerful position to profit from a low cost basis, subjective value and expert portfolio management. Tax Efficiency Oftentimes financial advisors will recommend tax efficient strategies, but they may come at the expense of capital preservation, growth or worst-case scenario, both. By carefully selecting an expert in acquiring, managing and selling the most elite rare coins in United States history, investors can strategically make 1031 exchanges and step-up future generations' tax basis. While preserving and growing a portfolio segment consisting of rare coins, one may utilize Section 1031 of the Internal Revenue Code to defer capital gains taxes indefinitely by selling rare coins and replacing them with like-kind property of equal or greater value. When executing this strategy it is crucial that investors both consult an attorney to comply with the Code and work with a reputable coin expert to select replacement property of the same nature and character to qualify for tax deferment. Coupled with long-term tax deferment, future generations may inherit a rare coin portfolio with a step-up in cost basis pursuant to Section 1014(a) of the Code, thus potentially eliminating capital gains taxes upon transfer. For example, an investor could purchase $1 million in coins today, buy and sell coins for several decades as profitable opportunities arise and then transfer (hypothetically) $10 million in coins tax-free to future generations. Achieving long-term wealth preservation, growth, tax deferment and step-up in tax basis is often referred to as the holy grail of estate planning, which can be accomplished through a well crafted rare U.S. coins strategy. Rare U.S. Coins as a Multi-Generational Wealth Transfer Strategy As I split my time between NYC, San Francisco and Orange County I incessantly hear about HNW families seeking capital preservation, growth and tax efficiency as components of their multi-generational wealth transfer strategies. Although these goals may be mutually exclusive depending on the asset class, one may achieve all these goals by carefully selecting experts in the rare U.S. coin industry and building a relationship with them over many generations. Even if future generations squander the income portion of their inheritance, estate planners can put in place controls that prevent future generations from completely disposing of their family's prized rare U.S. coin portfolio. Perhaps over time a trustee may sell a small percentage of the portfolio as an absolute last resort, but the strategy is to preserve and grow this segment of the estate indefinitely, tax-free. By implementing this strategy a family can achieve peace of mind that future generations will have the "riches" to continue its legacy.
