Estate Planning Can Be Complicated for Art Collectors

Law Firm Newswire



Fairfax, VA (Law Firm Newswire) November 23, 2015 – Art collectors are advised to think about the future of their art after they are deceased.

According to Michael Delgass, managing director of Sontag Advisory, a financial planning firm in New York, as one’s art portfolio increases in value, it becomes a more important part of one’s tax and financial lives. Heirs may realize undesirable tax consequences, including heirs who are not relatives of the collector or those who are relatives of the collector but who are not art connoisseurs.

Advisers state that it is challenging to quantify the value of art, and this can work to investors’ advantage when preparing their estates. The value of art varies depending on whether one plans to utilize it, donate it or loan it to an organization, states Jordan Waxman, managing partner of HSW Advisors in New York. He says that art is an asset that is not likely to help one achieve one’s objectives regarding one’s way of living or retirement, but it can be very useful as a means of transferring wealth.

Prominent Virginia estate planning attorney Lisa McDevitt states, “There are wealth transfer techniques that one can use when making a bequest of artwork. Such methods can generate tax advantages for the collectors and their heirs.”

If a collector would like to bequeath some valuable artwork to his or her children, then it should be appraised at the lowest possible value. In several countries, transfers to beneficiaries as gifts while the donor is still alive or as a portion of an estate following the donor’s demise are subject to tax at great rates. In most instances, the amount of the estate or gift must be considerable prior to the time at which the tax becomes effective.

Since expensive artwork similar to the art belonging to a collector might not be frequently sold, it is often difficult to place an exact value on the artwork. As a result, tax officials are apt to take a low valuation, but the source must be an independent evaluator. Waxman said that because art is an illiquid asset, one can assess it for a value that is less for purposes of gifting. However, absence of liquidity in planning one’s estate can also be detrimental in some ways.

Financial planners frequently recommend ways of transferring the ownership of art without transferring the art. Among the strategies that can produce a tax advantage are the sale of art to heirs in return for cash or a promise to pay, and the placement of the art in a trust or comparable entity, followed by leasing back the art.

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