Tom Clancy, author of The Hunt for Red October and many other military and intelligence thrillers, died in 2013. He left an estate estimated at over $80 million, which included a tank “with low mileage.”
There was no secret to Clancy’s love of military technology, both high and low. Some questioned he could only have gleaned the details in his early books through classified documents. Even before WikiLeaks, Clancy proved how much information was readily available if one knew where to look, and if one used a little imagination to connect the dots on the technological continuum.
Besides the tank, Clancy left other military collectables, which his current wife, designer Alexandra Marie Llewellyn, could probably use to decorate her upper Eastside Manhattan home.
Although few people are ready to die when they die, each of us who enjoys collecting as a hobby should take note of a few rules along the way:
- The notion that you are collecting as an alternative to investing rarely pays off.
- If you are successful in collecting something that consistently rises in value over many years, and you sell it because it was always part of your long-term investment strategy, you may be in for a surprise when you see that Congress moved the long term capital gains rate on collectables up to 28%. Although no one can predict future taxation, it doesn’t take Tom Clancy to predict that this is an area where tax rates could move even higher.
- If you die with a wine cellar, a rare book collection – or a tank – consider how difficult it will be for your heirs to come close to realizing the value you placed in these items. Collectables are worth only what they sell for. As tastes change, so will the value of your collectable.
- Selling the collectable to a wide market of buyers will cost money. Auction houses charge between 10% and 30% of the sale price. Selling to a limited number of buyers, puts your heirs at risk for selling with incomplete information. Using an independent appraiser also costs money and the time to find the appraiser who has that expertise. As with any investment, consider the transaction costs on both ends.
- Warren Buffet does not invest in tech stocks because he says he does not understand them. Investing in rare clocks or Dutch art from the 17th century is even more esoteric. If you understand these things, then provide a written or video tour of your collection so that your heirs will at least have some of your knowledge. Remember also that transporting collectibles to your heirs will also cost money.
- If you can, arrange for a sale prior to your death. Your estate will save taxes from the step up in basis at death, eliminating the capital gain tax, while your heirs will realize most of the value you placed on the items.