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Most people enjoy art and many have a special painting or sculpture in their homes. Those with substantial resources may have works of art that are considered quite valuable. In cases where there is an art collection, you may consider it as an asset with increasing value. Consequently, in estate planning, you will want to know about including these works of art in your estate and how they are to be bequeathed to your heirs along with the tax consequences.
The initial thing to do before naming beneficiaries to your art collection is determining if they even want the item. Not everyone is an aficionado of the arts and if they inherit a piece of art with some value, they may want to sell it immediately, or not appreciate the care such art may require. If they do wish to retain the art piece, it may require expensive preservation or a special insurance policy.
Valuing art is always a tricky thing. Its value depends on whether you are selling it, giving it to a museum, or lending it. If it is the work of a popular or reputable artist, having it valued as low as possible is a consideration if your estate value is over or close to the amount where estate taxes are levied. When having an art piece appraised, have it done by an independent and licensed appraiser so that the IRS will accept it. Otherwise, art is a difficult item to value and convert to cash
You may think that just giving it to your child without a formal bequest in your will, for example, will avoid problems. The transference, however, is a taxable event and is not a legitimate transfer. Years later, this could create considerable unwelcome issues for your child.
To avoid such problems, an estate planning lawyer can suggest certain strategies for you. For instance, you could sell the piece to an heir for cash or a promise to pay. You could placed the art in a trust, which will then own the piece and then the Trustee could lease back to you or your heir. Not having ownership of the art can help avoid having its value included in your probate estate.
If you want a charitable deduction, you can arrange to lend it to an institution for a certain part of the year. Transferring art at death for non-charitable purposes is preferable as it receives a step-up tax basis to fair market value. A surviving spouse could gift or donate the work to an institution and receive a tax deduction for the full market value of the art.
You might also consider transferring the art to a tax-exempt organization that has agreed to accept the art since this can save your estate thousands in estate taxes. If you wish to retain the art, then consider establishing your own private operating foundation.
There are numerous considerations and issues when valuable art is part of your estate. Discuss this and other matters with estate planning lawyer Patricia Bloom-McDonald . She will be able to advise you about the best strategy for transferring your art collection to heirs, an art institution, or if you have other plans for your art before or after you pass away.