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Wednesday, December 12, 2012

Estate Planning with Gold

Some people believe that the best way to protect wealth from the government is to bury gold in the garden and keep lots of cash in the mattress.  A recent story reported by NBC News illustrates why this strategy might not be the best estate plan.

             When Walter Samasko, Jr., passed in May 2012 in Carson City, Nevada, he was not discovered until at least a month later. At 69 years of age, Mr. Samasko died from heart problems without a will or any immediate family.

            The city clerk's office undertook wrapping up the estate and selling the house under the assumption that Mr. Samasko had died broke with only $200 in his bank account.  But when cleanup crews arrived at the home, they discovered boxes of gold, including gold coins, gold bullion, $20 gold pieces, Austrian ducats, South African Krugerrands, and English Sovereigns dated to the 1840's. The $7 million estimated value of the gold was based on the weight of the gold alone.  The value could be much higher considering the rarity of some of the coins discovered.  The gold had to be removed in two wheelbarrow loads.

            After investigating potential heirs, the city clerk determined that the closest next of kin was a first cousin, Arelene Magdanz,  a substitute teacher who lives in San Rafael, California.  When contacted by a lawyer regarding the estate and her newly found inheritance, she was shocked.  Ms. Gagdanz had not seen her cousin in over a year. 

            Mr. Samasko was described as being "anti-government, paranoid, and a reclusive hoarder.”  Evidently, Mr. Samasko believed that he could avoid taxes and government intervention in his estate by holding everything in gold.  But things didn't work out that way.  The City of Carson City has undertaken to wind up Mr. Samasko's estate and the Internal Revenue Service will collect at least $750,000 in estate taxes from Mr. Samasko's estate.

            We have a number of clients who hold a substantial amount of gold and cash in safety deposit boxes or in their homes.  These clients often fail to tell their estate planning attorney and CPA about the gold or cash on the assumption that it will be passed to the next generation without anyone discovering it.  But this is a risky plan for two reasons:

            First, the next of kin have a legal obligation to report the transfer of wealth to the IRS if the entire estate is over the estate tax threshold amount ($5.12 million in 2012 and, if and when the current law expires, $1 million in 2013).  Failure to report the transfer of wealth is considered tax evasion, a serious federal criminal offense.

            Second, next of kin who are willing to be dishonest with the IRS are likely to be dishonest with other family members, too.  In such cases, the first family member to find the gold and cash simply carts it away and doesn't report it to other family members who were intended to share the inheritance. 

            Gold has recently been a very good investment.  But when raw gold is held in an estate, the transfer of the gold should be properly handled.  There are legitimate ways to avoid estate taxes with these assets. Hoarding and hiding is not the best plan.

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