Turning Gold Into Green

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In one of Grimm’s fairy tales, a miller, trying to curry favor with the king, brags that his daughter can spin straw into gold. She is locked in a room with straw and commanded to deliver on the promise or spend the rest of her life in a dungeon. Actually, she can’t spin anything, and as she is in despair over her fate, the impish Rumpelstiltskin appears and offers to spin the straw into gold for presents. Each night he demands ever more until she has nothing more to give than the promise of her first-born child.

For some people who own gold, the challenge is just the opposite. They would like to convert their gold to greenbacks, but they hesitate to pay a tax rate as high as 28 percent on the gain. Possibly, they purchased the gold in the late 1990s when it was selling for less than $300 per ounce. Now the price per ounce is hovering around $1,600, but they are well aware that this is a volatile asset and the price could drop precipitously.

One possibility is to contribute the gold for a charitable remainder trust. The donors would receive payments for life or a term of years based on the fair-market value of the gold and the payout percentage selected. The gain would be taxed neither when it is transferred to the trust nor when it is sold by the trustee. The payments would probably be taxed partly as capital gain, partly as ordinary income, and possibly a portion would be tax-free. If the donors were to sell the gold, they would have to pay tax on the gain in the year of the sale, so the amount available for reinvestment would be diminished. Besides the capital-gain benefit, they would realize some tax savings resulting from a charitable deduction allowed in the year the gold is sold.

Silver, as well as gold, can be turned into green. Consider, for example, a certain individual who for years saved pre-1965 dimes, quarters, and half dollars he had received as change. Before that year, those coins consisted of 90 percent silver. He died a few years ago, and recently his son took two large buckets full of coins to a dealer. He received over $40,000 for them, which was many times their face value.

Indeed, gold and silver in any form can be contributed. The most common way to invest in gold and silver is to purchase Exchange Traded Funds, which represent a certain amount of the metal, but some people invest in bullion, or they purchase coins, such as the American Eagle or Krugerrands, all of which could normally be sold immediately by the trustee. There are still other individuals who have valuable gold or silver jewelry, or decorative arts objects, that they rarely use. All of these are candidates for contributions; outrights gifts, if the owner does not need income; or for a charitable remainder trust if the value of the property is sufficiently large to make a trust practical.

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