Estate Planning with Artwork

February 16, 2012 by Bart Chepenik

Miami-Dade, Broward and West Palm Beach counties are home to some of the finest art in the country. Alongside the many fine art galleries located in South Florida there are private art collectors and individuals who own valuable and sometimes extensive collections. These collections make up part of their estate and careful consideration should be given as to the distribution of these pieces. An experienced estate planner can help you decide when and to whom the art should be gifted.

Often art collectors wish to gift art to their children or members of their family. Art collectors should consider several factors when deciding to do this. The first consideration is that a 28% income tax rate is locked in for the children who receive the art and there are significant expenses for appraisals and the risk of a gift tax audit. Also the giver should consider if the art is something that the children are even interested in receiving. Children’s tastes may be different than the parents, and the children might not appreciate the gift as much as the parents hope. Also, if grandchildren live in the house, there may be a risk of damage to the art!

Sometimes the best and simplest plans when dealing with fine art in an estate is to consider giving the art to public charity. Generally speaking, the art owner gets an income tax deduction for the full value of the art, without ever having to recognize the gain. There are 4 major issues:

(1) Type of charity — the gift should be made to a public charity, not a private foundation;

(2) Type of property — the art should be long-term capital gain property (owned more than one year and capital asset);

(3) Charity will use it for a related use (charity must advise IRS on Form 8282 if it sells the art within 3 years); and

(4) Qualified appraisal by qualified appraiser must be attached to the income tax return.

A good estate planning attorney will help advise and suggest how to best handle these and other important decisions when creating or modifying an existing estate plan. If you or someone you know needs help with estate planning issues and lives in the Miami-Dade, Broward or West Palm Beach area please contact the experienced attorneys at Chepenik Trushin at (305) 981-8889 for an initial consultation.


References:
Steve Leimberg's Estate Planning Newsletter Issue: 1923 13-Feb-12
IRS Federal Income Tax Code