Converting Personal Assets into Income

Cancer and its treatment can leave a survivor with a need for more income. During a time of financial need, you might consider selling some of your personal assets, such as furniture, vehicles, jewelry and financial accounts to increase your income. Personal assets can also be used as collateral to secure a loan. The process of converting personal assets into income can be complex. It is important to understand your options and how each my affect your financial situation.

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Converting Personal Assets into Income: Detailed Information

This information is meant to be a general introduction to this topic. The purpose is to provide a starting point for you to become more informed about important matters that may be affecting your life as a survivor and to provide ideas about steps you can take to learn more. This information is not intended nor should it be interpreted as providing professional medical, legal and financial advice. You should consult a trained professional for more information. Please read the Suggestions and Additional Resources documents for questions to ask and for more resources.

Cancer and its treatment can leave a survivor with a need for more income due to financial concerns. During a time of financial need, you might consider using some of your personal assets to increase your income. Because there are advantages and disadvantages to the different options available to do this, you will benefit by understanding the various methods that are available.

For the purposes of this document, personal assets are defined as items that you own that are worth money. These may include furniture, vehicles, jewelry, antiques, art, collectibles and financial accounts (such as stocks, bonds and certificates of deposits), as well as other items with value. The process of converting personal assets into income can be complex, so discuss your specific needs and the various methods that are available to you with someone who is knowledgeable about financial strategies and tax planning, such as a financial planner or accountant.

There may be many good reasons to consider selling some of your personal assets. For example, you may want to move to a smaller home or get rid of things you no longer use. Keeping belongings in paid storage for the long-term is generally not a good idea because storage fees are typically high and may place further demands on your income. You may find items that could generate income instead of taking up space.

Before deciding to sell personal assets for extra income, talk with family and close friends. There may be other options to help you obtain more money, such as through a personal loan. Also, if you qualify, there may be financial assistance through a variety of government or nonprofit programs. For example, some programs help people obtain health care services and/or prescription medications at reduced rates or no cost, depending on the level of need.

This document provides an overview of the two main methods of using personal assets to bring in more income:

• Selling personal assets to obtain income
• Using personal assets as collateral to secure a loan

Selling Personal Assets to Obtain Income

If you have decided to sell some of your personal assets, first consider what you want to sell and your reasons for doing so. Next, identify the current market that exists for these items and determine how much you should be able to sell them for. Also, try to imagine how you will feel when the items are gone. Taking these steps will help you decide which of the sales methods will work best for your situation.

Consider the following questions:

• Have you considered a variety of sales methods?
• What sales method might get you the most money for your items?
• How quickly will you need the cash?
• Are you willing and able to take the time and effort to sell the items?
• Are you emotionally attached to the items so that it may be difficult to part with them or negotiate a fair price?
• Is it better for you to sell objects as a set or individually?

Setting the Sales Price

Before offering your personal assets for sale, you need to identify an asking price for each item. In order to establish a fair sales price, assess the current value of each item. One good way to do this is by talking with people who collect and/or sell similar items to learn about current market values. Other approaches that are commonly used to appraise or estimate the sales value of personal assets include:

1. Checking online auction sites. Online auction sites (such as eBay, uBid and Auctions.com) offer a wide variety of items for sale. However, keep in mind that any final price you find online is only a guideline and may not predict what will happen when you sell your item.
 
2.  Hiring a professional appraiser. If your item is a collectible or very valuable, an appraiser can help collect further information to determine its value. Keep in mind that an appraisal based on a description or a photograph is not as reliable as one that results from a personal inspection. The appraisal is only an indication of what the item is worth and not a guarantee of what you will actually get if you sell it. Work with someone you trust and talk with your friends and family about experiences and recommendations they may have.

Consider the following if you decide to use a professional appraiser:

• Do you need an appraiser who has expertise in a variety of areas or a specialist for the item you wish to sell? For example, if you want a painting appraised, look for a museum or art gallery curator or appraiser who knows values of many types of items or for a dealer who only appraises paintings.
• Do you want an appraisal from a collector or dealer who typically deals with the type of item you want to sell? Keep in mind that if an appraiser has an interest in purchasing your item, you may not be quoted the highest value of the item.
• Do you know how much you will be charged for a professional appraisal? Get a written quote in advance that includes all of the costs for a professional appraisal. You are likely to be charged based on the amount of time the appraiser will need to spend inspecting the item, conducting research and preparing a written report for you. Avoid an appraiser who wants to charge a percentage of the value of the item.
• Is there a way to pay less (or nothing) for the professional appraisal? In most cases, the only way you are likely to get a free appraisal is if you contact an auction house with the intent of selling your item.

Finding the Best Sales Method

Once you have a good idea of the value of the item you want to sell, consider the various ways you can sell the item to decide which is best for you. Keep in mind that income tax may be due if personal assets are sold for a profit, so this may decrease the cash available to you for other uses.

The following are the most common methods used to sell personal property:

1.  Private sales: You can sell items yourself through yard or garage sales, flea markets or through local publications where the cost of advertising your item is minimal. Generally, the safest approach is to accept cash and/or a cashier's check that has been made out to you for a sale. A personal check may bounce and there is very little chance of recovering your money or the item if that happens.

2.  Consignment stores: When you consign something for sale through a retail business, you turn it over to a seller who will offer the item to the store's customers. If your item sells, you and the consignment seller share the money earned. If the item does not sell within a specified time period, it is returned to you.
  
Keep in mind that your valuable items should be insured, either by the seller or through your own insurance policy, if they are to be sold through a consignment arrangement. If you are interested in using a consignment store, ask friends, look online, or check the business listings in your local phone book (often listed under "consignment services") for a shop that carries the kind of items you want to sell.

3.  Personal loans: You may find that family members or friends are willing to arrange a personal loan. This type of loan is less regulated and may not even have to be secured with collateral. Because of the unique situations and relationships involved in personal loans, it is very important that everyone understands and has agreed to the conditions of the loan. Typically, the conditions of this type of loan only have to be acceptable to the people involved; however, your state may have laws limiting the amount of interest that can be attached to the loan.

4.  Dealers, collectors or consultants: Dealers (such as art or gallery dealers or collectors) buy personal property outright and then sell the items to other buyers for a profit. As soon as you sell and turn over the item to the dealer, you receive your payment. There is no waiting, as in consignment sales. The sale price you receive from a dealer is usually less than what a private buyer is likely to pay for the item, because the dealer will sell the item for a higher price and keep the profit. Check with several dealers in your local area. Even if they do not handle your particular item, they likely know the names of reputable dealers who do.

5.  Auctions offer items for sale to the highest bidder among the people who participate in the auction. Keep in mind that selling personal property by auction may involve reporting capital gains on your income tax return. Auction houses and Internet auction sites are the main types of auctions.

The following overview defines the differences between these types of auctions:

Auction Houses:

A business or firm that conducts auctions is called an auction house. An auction typically takes place in one location where potential buyers either visit the location to make their competitive bids or place their bids by phone or email. Before using an auction house, learn about all the costs that are involved and who will be required to pay them. For example, there could be expenses for you, the auction house, the purchaser of your property or for all of you.

Before contracting with an auction house, find out if you can set a "reserve" or minimum price that you will accept for your items. Be sure that the item will be returned to you if there is no bid made above the reserve amount you set and no sale is made. If you want to turn over items to the auction house before the bidding process, find out if the auction house will insure your items and whether they will advertise them.

When you set up a consignment arrangement with an auction house, they will take a percentage of the total sale of your items. Some auction houses will arrange to pack up and move the items from your home and other storage locations as part of the arrangement you have with them.

Auction dealers may offer to purchase items up front before the auction occurs. This option may appeal to you; however, you may find that the price that is quoted by the auction dealer or auction house is considerably lower than what you might make through a consignment arrangement.

In some cases, an auction house may agree to advance you money against the value of an item if you agree to eventually sell the item through the auction house. The sale may not have to be immediate. For example, you might be able to arrange to keep the item in your possession with the agreement that the item will be sold through the auction house after you die.

Auction Sites on the Internet:

Many people are now using auction sites on the Internet. When using an online auction site, the seller sets the length of time the auction will run. Bids are made online based on a description, and often a photograph, of the item being sold. Some people write their own descriptions and take their own photographs. Others contract with an Internet auction business that will do the work for them in exchange for a fee or a percentage of the sale.

Online consignment sellers will sell your items on auction Web sites for a fee, sometimes up to 35 percent of the sales price. Consignment sellers, sometimes called trading assistants or trading posts, may be affiliated with an Internet auction site. The growing popularity of this type of service is bringing increasing state regulations. Be certain that you understand the regulations in your state if you decide to work with online consignment sellers. Many states now view these consignment sellers as "auctioneers" that need to be licensed. Other states view consignment sellers as the equivalent of pawnshops and make them subject to the same laws.

Before you decide to use an Internet auction site, be certain that you understand and have a written copy of the financial arrangements that apply to the Web site. For example, find out if there is a fee for listing the item and what happens if the item sells. Be certain to use a site that has an option for a secure method of payment so you are assured that you will receive payment when the item sells.

Using Personal Assets as Collateral to Secure a Loan

When personal assets are used as collateral for a loan, you offer a lender something of value to secure (guarantee that you will repay) the loan. If you do not pay the loan back within a certain amount of time, the lender can keep the collateral or sell it to someone else to pay off your debt. Of course, if you do repay the loan, you get to keep the item.

If you sell personal property, you do not have to worry about repaying a loan, but you have to part with the item. This is a perfect solution for items that you no longer need or want. However, if there are valuables that you want to keep in your family or pass on to your heirs, you may want to look into a collateral loan option as an alternative.

There are many places you can go to arrange a collateral loan, including:

• Banks
• Commercial lenders
• Auction houses
• Pawn brokers or collateral loan brokers

Loans by these businesses are governed by federal and/or state laws, as well as by a variety of business guidelines. Carefully compare the fees, interest and other charges imposed by these different types of lenders as they may vary greatly.

Any personal property that has value can be used as collateral for a loan. The more valuable the item is, the more likely it is that you will be asked to provide proof of ownership. You should be prepared to turn the item over to the lender during the entire time the loan is outstanding.

Some things commonly used as collateral include:

• Term bank accounts, such as certificates of deposit
• Stocks and bonds
• Antiques, art, jewelry or other valuable collectibles
• Vehicles

Using Term Bank Accounts (Certificates of Deposit) as Collateral for a Loan

A term bank account is an account for which you receive a higher rate of interest because you agree to leave the money in the bank for a specific length of time, usually several months or years. The most common type of term bank account is the certificate of deposit (CD). The rate of interest earned on this type of bank account will depend on the length of time the money is required to be kept in the account (usually several months or years). For example, if you agree to leave the money on deposit for two years, you will be paid a higher interest rate than if you agree to leave the money on deposit for six months. However, if you take money out of the term bank account before the end of the time period, no matter what the reason, you will lose some of that interest and, in some cases, pay a fee.

Rather than taking money out of the account and losing the interest, it may be a better option to borrow money against the term bank account, using the account as collateral. There are generally no fees for this type of loan. You may find it easiest to apply for a loan with the same bank or financial institution that holds the account. Because the loan is secured by the account, you should be able to receive a low interest rate depending on your personal credit rating and credit score.

Before you agree to this type of loan, compare the cost of the loan (what you will pay in interest) against the amount you would lose if you simply withdrew money from the account. Check your copy of the agreement governing the deposit to make sure you understand what your options and limitations are. If you need help determining whether a loan is better than closing a term bank account, speak with a professional at the bank or other financial institution.

Using Stocks and Bonds as Collateral for a Loan

Borrowing against stocks and bonds from financial institutions (such as your bank) may be another option available to you. Each bank has its own rules as to the maximum amount it will loan and what types of stocks and bonds it will accept as collateral. You may want to start with a bank with which you already have a financial relationship, but compare terms and costs with at least two other institutions. An accountant, stockbroker or financial planner can provide professional assistance to help you determine whether this kind of action would be right for you.
 
Donating to Charitable Causes

Making a donation of cash or noncash items to a qualified charitable nonprofit organization may benefit your financial situation. Specifically, there are good tax benefits available for the tax year in which you make the gift if you itemize your deductions. If your donation qualifies with the Internal Revenue Service (IRS) as tax deductible, the actual cost of your donation is offset or made up for by your tax savings.

If you do make a donation, keep in mind that a receipt or written confirmation that shows the charity organization's name, date of donation and amount donated is required by the IRS for your tax claim. You can usually deduct the fair market value of the donated items, but a qualified appraisal is required for more expensive noncash items if your deduction exceeds the amount specified by the IRS. Be sure to check with the IRS for the most current regulations related to donations and deductions on your income tax return.

There are a number of things you can do to protect yourself and any gift you are planning to give to a charity. Most importantly, know about the charitable organization and give only to a charity that has a proven track record in fulfilling its mission effectively to achieve results. To research this type of information, you can easily consult reports from nonprofit "watchdog" organizations, such as the Better Business Bureau. These independent nonprofit organizations evaluate charities in relation to standards that have been established to encourage honest practices, promote ethical conduct and to support and foster public confidence in charitable organizations. In addition, you can search for specific nonprofit organizations on the IRS Web site.

Using Pawnbrokers (Collateral Loan Brokers) to Obtain a Loan

Using a pawnbroker (sometimes called a collateral loan broker) is a way to borrow money if it is difficult to obtain credit other ways. A "pawn" is a loan where personal property items (such as jewelry, electronics, musical instruments or collectibles) are used to secure (guarantee) the loan. References and credit ratings are not checked, but you are likely to have to pay a very high interest rate for a short-term loan.

Pawnbrokers are licensed by a local governing agency (such as the state, county or a city) and there are rules and procedures that must be followed. Regulatory agencies include the Federal Trade Commission and local and national law enforcement agencies. If you decide to pawn an item, be certain that you understand all of the terms and conditions of the agreement.

If you pay back what you owe within the agreed upon period of time, you should be able to get your items back from a pawnbroker. To reclaim your property, you must present the ticket or other receipt that you received from the pawnbroker with your repayment. Because anyone who presents the ticket to the pawnshop may be allowed to reclaim the item, your ticket should be kept in a safe place.

Keep in mind that, if you cannot meet the terms of the pawn agreement, the pawnbroker will keep your item and sell it to recover the money you owe, including the outstanding loan amount and any interest. If your item sells for more than you owe the broker, you are typically entitled to receive the profit, but only if you claim it within a specified period of time.

Using Payday Lenders

"Payday lenders" are typically used to obtain very short-term loans when an individual has poor credit. Unfortunately, payday lenders have the reputation of using methods that are questionable, such as providing short-term loans at very high interest rates with hidden fees. In almost all cases, it is wise to avoid using this type of loan source.

Payday loans are typically for cash advances of $500 or less. At the time the loan is set up, the borrower must give the payday lender a postdated check or authorization for an automatic withdrawal from his or her bank account. The loan amount that is given to the borrower is what remains after deducting the lender's fees. For example, a typical two-week payday loan will cost the borrower at least $15 for every $100 borrowed. This level of loan fee is equal to a 400 percent annual percentage rate, and, if the loan is renewed, it may end up costing more than the amount of money borrowed.

Review Your Options

When you need credit or additional income, review your options carefully. Make certain that any credit offer you consider has the lowest annual percentage rate and terms that meet your needs. Think about the effect that various methods of converting your personal assets into income would have on you and your family. Some methods are likely to work better than others for you. If you have questions or need help with any part of this process, talk to someone who is knowledgeable and experienced in these types of matters.

This document was produced in collaboration with:

David S. Landay, Esq., author of Be Prepared: The Complete Financial, Legal and Practical Guide for Living with Cancer, HIV and Other Life-Challenging Conditions.

Works Cited

Landay, David S. Be Prepared: The Complete Financial, Legal and Practical Guide to Living with Cancer, HIV and Other Life-Challenging Conditions. New York: St. Martin's Press, 1998.

Mann, Ronald J. and Jim Hawkins. Law and Economics Research Paper No. 083: Just Until Payday. The University of Texas at Austin School of Law, October 2006.

"New State Licensing Requirements for Auction Sites." eCommerce News. 5 December 2006.
www.ecommercenews.org

"Payday Lending Basics." Center for Responsible Lending. 5 December 2006.
www.responsiblelending.org

"Payday Loans = Costly Cash." FTC Consumer Alert. Federal Trade Commission. 5 December 2006.
www.ftc.gov

"Tax Benefits of Giving" and "Guide to Donating Noncash Items." Charity Navigator: Your Guide to Intelligent Giving. 7 December 2006.
www.charitynavigator.org

"Tips for Protecting Yourself and Your Investment in Charities." Nonprofit Information Center: Wise Giving. 15 December 2006.
www.independentsector.org

Zubrod, Sheila, and David Stern. Flea. New York: HarperCollins Publishers, 1997.

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Converting Personal Assets into Income: Suggestions

The suggestions that follow are based on the information presented in the Detailed Information document. They are meant to help you take what you learn and apply the information to your own needs. This information is not intended nor should it be interpreted as providing professional medical, legal and financial advice. You should consult a trained professional for more information. Please read the Additional Resources document for links to more resources.

If your financial situation makes it necessary to use personal assets to obtain income, explore your options for selling these items and/or for using personal assets as collateral for a loan.

Consider questions such as the following before deciding to sell your personal assets:

• How much money do you need now?
• How much money will you need in the future?
• How long will the money from the sale of your item last?
• Will you owe tax on the profit from the sale of your item?
• Should you put away money to pay taxes resulting from the sale of your item?

Talk with your family or friends about your financial situation, particularly if the idea of parting with some of your personal items is difficult for you.

Consider discussing your financial situation with an expert such as a financial planner, investment specialist or an attorney to be certain you understand the advantages and disadvantages of your options.

Consider options to obtaining loans or selling personal items, including:

• Asking creditors for additional time to pay your bill
• Developing a budget or spending plan to help you to avoid unnecessary purchases
• Building savings through regular (even small) deposits for emergencies
• Getting overdraft protection for your checking account
• Talking with nonprofit consumer credit counseling services that are available at little or no cost in your state

If you must obtain income immediately, make a list of your personal items that have value and that you would be willing to sell or use as collateral for a loan.

If you are considering selling personal items, create a sales plan that takes into account a good marketing strategy.  Ask yourself:

• Who are likely customers for your types of items?
• What is an appropriate price for these items?
• How can I best reach people who will buy these items?

If you are thinking about donating to a charitable organization, consider the following:

• Does the donated item qualify for the charitable contribution deduction according to the IRS?
• Is the charity registered as a nonprofit 501(c)(3) organization with the IRS?
• Does the charity clearly state its mission and describe its programs?
• Does the charity identify its short-term and long-term goals?
• Has the charity proven that it is making progress towards its goals?
• Has the charity proven that it is doing what it says it will do?

Consult with a free independent nonprofit "watchdog" rating organization, such as the Better Business Bureau, to learn more about the financial health and performance ratings of thousands of charitable organizations. Information can also be obtained through the IRS Web site (www.irs.gov) and through other private and public sources to evaluate how well the charity does what it claims to do. In addition, annual reports and other information can be requested directly from the charities themselves.

If you have concerns about the practices or terms provided by a financial lender, contact the Federal Trade Commission (FTC) to find out if the Truth in Lending Act has been violated. The FTC works for consumers to prevent fraudulent, deceptive and unfair business practices and to provide information to help consumers avoid them.

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Converting Personal Assets into Income: Additional Resources

The resources listed below provide more detailed information and support services to help you with converting personal assets into income.  Please read the Detailed Information and Suggestions document for more information and questions to ask.

Click a resource for more information:

• LIVESTRONG SurvivorCare Program 
• National Association of Personal Financial Advisors 
• The Financial Planning Association
• AARP
• Better Business Bureau Wise Giving Program
• Federal Trade Commission
• Internal Revenue Service

LIVESTRONG SurvivorCare Program
www.livestrong.org/survivorcare

LIVESTRONG SurvivorCare offers assistance to all cancer survivors, including the person diagnosed, caregivers, family and friends. The program provides education, information about treatment options and new treatments in development, counseling services and assistance with financial, employment or insurance issues. To provide these services, LIVESTRONG SurvivorCare has partnered with several organizations, including CancerCare, Patient Advocate Foundation and EmergingMed.

The LIVESTRONG Survivorship Notebook is a tool that can help you organize and guide your cancer experience. The portable, three-ring binder contains a variety of information covering a full range of physical, emotional and practical survivorship topics. You may order a free LIVESTRONG Survivorship Notebook at www.livestrong.org/notebook. Shipping and handling charges will apply.

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National Association of Personal Financial Advisors
www.napfa.org

The National Association of Personal Financial Advisers (NAPFA) is a professional organization for financial planners. Membership is limited to financial planners who charge customers a set fee rather than those who earn commissions from products that they sell to customers. From their Web site, you can find a fee-only financial planner in your area. The site also includes information about how to choose a financial planner and tips for managing your finances, as well as articles about investing, long-term care and disability insurance policies, retirement planning and more.

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The Financial Planning Association
www.FPAnet.org/public

The Financial Planning Association® (FPA®) is a nonprofit, membership organization for the financial planning community.  FPA offers educational resources to help individuals discover the value of financial planning, including information on investing, tax planning, insurance, retirement planning and more.  Tools on the FPA Web site outline financial planning decisions you should consider at different times in your life.  The site also includes an online financial planner referral service called PlannerSearch to help you locate a financial planner in your area.

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AARP
www.aarp.org

AARP is a nonprofit organization for people over the age of 50. The AARP Web site includes information on a number of financial and practical subjects, and you do not have to be an AARP member or over the age of 50 to access these articles. Financial information includes worksheets for calculating income, expenses and cash flow, as well as tips for overall financial planning, including retirement accounts, reverse mortgages and investing. You can also use the Web site to request help with finding affordable legal services. Some information on the site is available in Spanish.

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Better Business Bureau Wise Giving Program
www.give.org

  
The Better Business Bureau Wise Giving Program provides information about charitable organizations, including the organization's income, assets, tax status and expenditures. This information can help donors make informed decisions about how they wish to donate money. In addition, the Web site provides tips about charitable giving and gives warnings about fraudulent donation appeals.

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Federal Trade Commission
www.ftc.gov

The Federal Trade Commission (FTC) is the governmental agency that oversees many consumer protection issues, including credit reporting, identity theft, fair debt collection processes and other credit issues. The FTC Web site provides information on a variety of subjects, including buying a car, investing, preventing identity theft, choosing a credit card, and managing credit problems. Through the site, you can also file a complaint about a business transaction or report identity theft. Current information about filing for bankruptcy, dealing with creditors and repairing your credit history is also provided. Information on the site is available in Spanish.

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Internal Revenue Service
www.irs.gov

From the Internal Revenue Service (IRS) Web site, you can view or print fact sheets, tax instructions and forms, IRS publications and frequently asked questions. Tools are available to help you estimate appropriate amounts for withholdings, tax deductible donations and certain tax credits. You can also find out how to file your tax return online or find volunteers who can help you with your tax forms. Contact information is provided for state and local IRS offices. Information on the site is available in Spanish.

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