18th May 2016
Artist David Dory is quoted as saying, “To own a piece of work done by an Artist is to possess one of their facets, one of the windows of their life.” People collect art for a variety of reasons. For some, it is a hobby, for others, it is simply to decorate their homes. However, serious art collectors know it is more than just filling rooms with decorative pieces. Art collectors are passionate about supporting the arts and being a part of art history. Some collectors spend their entire lives acquiring pieces of artwork, which become representative of their lives. Just as any other item of importance, art collectors need to include their artwork in their estate planning.
Sadly, many art collectors do nothing in terms of estate planning for their art collections. Once they pass away, their artwork is left in the hands of an executor who has no clear direction on what to do with the art. The artwork either ends up sold or with a family member who does not share the same passion and love for artwork. Not appropriately planning often causes additional administrative expenses and is the least desirable when you disposition the collection.
Thus, it is extremely important to have a plan in place for valuable heirlooms such as art. If you have an extensive art collection, you have three options: you can sell the artwork, donate it or gift it to a loved one. Depending on your unique situation and the importance of the artwork to you, you may choose one of the following options while you are still living or after you have passed away.
If you elect to sell the artwork, the first step is to work with a qualified appraiser to determine the value of your collection. Lifetime sales of art can be expensive, especially if your collection is worth a significant amount of money. With collectibles, there are capital-gain rates plus the costs of sales commission, insurance and sales tax. It is more expensive to sell art than most of your other assets. If you choose to sell at death, it can be a less expensive option. When you do this, the tax basis for art collection is increased to fair market value at the time of death, which reduces and sometimes eliminates capital gains tax. For estate tax purposes, when you wait to sell upon death, the entire value is included in the estate. Regardless of if you elect to sell your artwork now or upon death, it is wise to get your collection appraised now to avoid estate tax liability later.
The second option is to donate the art collection. The donation can either be to charity or a family member. If your family members are interested in the art collection, you have the option to gift it, using your annual or lifetime gift tax exclusion, transfer it as an LLC or place the artwork in a trust. When you transfer as an LLC, several family members can own interests rather than the actual artwork. The LLC acts as the owner of the art and can be formed during your lifetime. If you choose this option, you need to carefully plan with an estate planning attorney to avoid certain estate tax pitfalls and results. If an LLC is not right for you, you have the option to pass the artwork along to your heirs based on criteria you set forth, such as what you want them to have or what you think would be of interest to them.
If you choose to gift the artwork to your loved ones, it would be wise to work with an estate planning attorney. One option when working with an estate planning attorney is to put the collection in a revocable trust. A revocable trust can be amended at any time while you are still living. Once you have set-up the trust, you can determine who the beneficiaries will be. By placing the collection in a trust, your beneficiaries avoid probate and other estate-tax issues. Additionally, the trust allows you to specifically state what you want to happen with your art collection.
If you do not think your loved ones will be interested in owning the art after you pass away, you may want to consider donating it to a museum or university. If you choose to donate, you will receive a sizable tax deduction based on your adjusted gross income. Depending on your age, you may or may not need the tax deduction. If you choose to donate, you can do so while you are living or upon death. If you choose to donate upon death, it is often a much simpler process. Your artwork is delivered to the desired charity and the tax deduction mentioned above goes toward your estate.
Regardless of what option you choose; early planning is key. If you have spent your entire life collecting artwork, you will likely feel more satisfied and secure having a planning in place for your artwork. If you have an art collection and you would like to discuss your estate planning options, please contact me. My experience obtained from working with diverse clients from all walks of life allows me to provide my clients with practical solutions to their specific estate planning needs. I draw upon a broad range of legal expertise to develop creative, cost-effective solutions for each client.
Call me directly at 1-714-385-0044 to schedule a consultation or email me.