How Your Art Collection Factors Into Your Estate Plan
By: Barry E. Haimo, Esq.
January 28, 2020
Every piece of artwork — from internationally renowned photography to mixed media pieces by artists around the country, all the way down to works found at the neighborhood art bazaar — touches people differently based on their personal experiences.
For most enthusiasts, collecting isn’t so much about appraisal values and documentation, but the love of a particular artist or craft… at least initially.
Because of this, art collections commonly go unnoticed as an asset of value throughout the early stages of the estate planning process. But they shouldn’t!
Consider what’s on display in your home, then ask yourself this: how should your collection factor into your estate planning efforts?
Not sure? Take a look at a few options you might want to consider.
Bequeathing an Art Collection to Heirs
Most clients begin by considering which pieces they would like to leave to certain family members or friends. The people you choose are officially known as “non-charitable beneficiaries.” Besides friends and family members, there are a number of individuals that also qualify as such:
- Insurance agents
- Framing experts
- Historians or other specialists
Another common estate planning strategy is to transfer the art collection to an LLC and name multiple family members as the shareholders of the collection.
This ensures that the sale of each piece is a family decision and that your family members will each profit evenly from any transaction.
The most important aspect of leaving parts or all of your collection to heirs in any scenario is to bequeath the appropriate resources to ensure proper maintenance of each work.
Selling an Art Collection
When the costs and responsibility of maintaining a collection seem too much for the family, some clients consider selling some or all of their collection.
Because of the tax implications and the sheer manpower it can take to manage the sale of an art collection, this often winds up being the most costly plan of action.
Currently, the capital gains tax is 28 percent on art and other collectibles. This is eight percent higher than normal capital gains taxes. In addition to taxes, once a work of art is sold, sales commission, sales tax, and likely shipping costs must be paid out as well.
If your heirs decide to sell after you’ve passed, capital gains tax typically gets reduced or disappears altogether. However, sometimes donating results in a greater return on investment overall. Working with an estate planning attorney on number crunching is beneficial for weighing the pros and cons of a sale.
Collectors also often wish to weigh in on who (or what organization) will be the next caretaker of part or all of their collection.
In any case, understanding the value of your collection is paramount in deciding whether it’s best to sell it. A careful valuation can ensure the overall value of your estate remains intact.
Donating an Art Collection
When a sale isn’t the route a collector wishes to go, another option is to donate. Choosing to donate artwork to a museum or another charitable organization, the collector is personally entitled to a deduction in income tax reaching up to 30 percent.
This tax benefit is passed along to a collector’s estate when the donation occurs posthumously. The collection is delivered to the institution of choice, and the exact value of the donation depends upon the overall value at the time it is gifted.
Your estate planning team can be instrumental in ensuring your specific conditions for the donation including where and how you wish the artwork to be stored and displayed.
If thinking about these estate planning strategies has sparked an idea for how you wish to see them included in your legacy, then it’s time to begin the proper cataloging, appraising, and documenting of your collection.
For questions about asset protection for your personal art collection and how to get started on incorporating them into your estate planning efforts, contact Haimo Law today.
Barry E. Haimo, Esq.
Strategic Planning With Purpose®
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