Most people think of cash, stocks, bonds, life insurance policies, and real estate when they create their estate plan. Many people overlook valuable collections of artwork or other items they have amassed over the course of their lifetime. Passing on a prized collection can be tricky because most collectors have an emotional attachment to their items their heirs may not necessarily share. Additionally, the financial value of a lifetime collection may be difficult to ascertain. Too often, a collector fails to properly catalogue and appraise his or her collection. This can take children and other heirs years to accomplish. Several estate planning steps may make it easier to pass your collectibles on after your death.
If you plan on bequeathing your collection to children or other loved ones, it is important to know its value in order to avoid unwanted tax consequences. Unfortunately, many collectors are unaware of the current value of their collection. An extensive collection should always be appraised prior to any transfer. If you have a substantial art collection, it may also be a good idea to contact the Internal Revenue Service’s (IRS) art advisory panel. The panel will determine the overall tax value of the collection. One of the benefits of doing this is that the value is binding on the IRS, but not on the collector. Additionally, the IRS may discount the value of an art collection if you own a great number of pieces by a particular artist as the sale of your collection may flood the market.
In order to reduce the tax bill on any type of collection, individuals may choose to begin distributing less expensive items prior to their death by utilizing the federal gift tax exclusion of $13,000 per year. It is also a good idea to ensure any gifted collectibles are appraised and a gift tax return is filed with the IRS. Despite that no tax will be due on gifts that do not exceed $13,000, the return will be readily available in case of any possible future audits.
Sometimes, descendants are eager to keep a valuable collection in the family. Other times, children and grandchildren do not necessarily have a desire to maintain what were once your prized possessions. In order to keep a garage sale sign off of your lawn, a collector may choose to begin selling or auctioning off valuable items prior to death. If you are not ready to part with your collectibles, you should have a conversation with your descendants regarding which items are the most valuable and which can be sold easily. Collectors may also have the entire contents of an extensive collection auctioned off upon their death.
Many collectors choose to donate their collections to a museum or other charity. Unfortunately, some collections may be immediately sold by the charity to raise money. In order to defray preservation expenses, museums in particular may also request a cash contribution in addition to any donated artwork. In such cases, establishing a charitable remainder trust may be helpful in order to lower a donor’s tax liability. It is important for a collector to understand ahead of time that doing so may cause a collection to be broken up.
Proper estate planning requires an evaluation of both traditional and nontraditional types of wealth. Oftentimes, a variety of financial and emotional factors will come into play. Additionally, unexpected tax and other consequences may have an effect on how you choose to transfer your wealth at death. In order to protect the financial future of your loved ones, you are advised to consult with a skilled estate planning attorney.
Contact Estate Law Partners, LLC, for assistance with all of your estate planning needs. Our attorneys help clients with trusts, health care documents, probate matters, powers of attorney, wills, insurance, and a variety of other estate planning tools. You can request a consultation with one of our experienced attorneys by submitting our online form.
Additional Resources:
Making Plans for Prized Collections, Heartstrings Included, by Paul Sullivan, New York Times
