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Originally Posted by insidethewrapper
What a collection ! This is what we talk about on here all the time. Again a tax discussion . Does the wife inherit the collection at current market value and therefore doesn't pay any taxes on the sales or does the estate pay taxes between the current market sale value (auction result) minus the initial price paid for the cards.
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Under the current estate tax laws in place, there is still a basis step-up for inherited assets. To fully answer your question though we would need to know if he had a will, to whom were the cards left under the will, and if the cards were considered as owned solely by the doctor, or jointly by both him and his wife.
As it is now, all the assets he personally owned, and half of the assets he owned jointly with his wife, get valued at their current fair market value (FMV) on the date he dies, or an alternative date within six months after he passes if so elected by whoever is in charge of the estate. The total FMV of those is then used to determine if he has a taxable estate for federal estate tax purposes. If he leaves everything to his wife, there is no federal estate tax due as you are allowed an unlimited exemption from federal estate tax for everything left to a surviving spouse. Plus the spouse gets a step-up in the basis of all the assets she receives to their FMV.
So if the doctor was considered the sole owner of all the cards, and left them all to his wife, she gets the estimated $20MM FMV as her basis. So if she then sells them for $20MM, she has no gain to pay income tax on. Now if it was considered that she owned the cards equally with her husband, his half would be stepped-up to a $10MM basis and her half would be 50% of whatever her and her husband had originally paid for them. So in this case if she sold the cards for $20MM she would likely end up paying some capital gain tax, but we'd need to know their original basis in the cards to know how much gain would be taxable. (If they lived in a community property state the cards would be stepped-up 100% to the $20MM FMV regardless if originally acquired jointly or separately by the couple.)
And if some/all of the cards are left to people besides his wife, they get the stepped-up basis on whichever cards they inherit as well.
Now as for whether or not there is a federal estate tax on the value of the cards, as I already said, if he leaves them all to his wife, then no. But if he leaves some/all the cards to other people/relatives, there could end up being some federal estate tax due, but we'd have to at least know the FMV of all the other assets in his total estate, and how much went to his wife, and how much went to others, and so on.
And so you know, these estate tax laws are being looked at for significant changes in the very near future. So far just talk, discussions, and speculation. You can do online searches to see how some people think these federal estate tax laws may end up being changed. And also, this is just referring to federal estate taxes. There are a number of states that also impose an estate tax as well, which I'm not even going to try and get into.