Estate planning and valuable art

Consider these two factors when transfering valuable artwork.

It is often wise to have a varied financial portfolio. For some, this means inclusion of valuable artwork. Although artwork generally does not serve as a dependable financial vessel to fund retirement or other life goals, it can serve as a tool to help transfer wealth.

Art as a tool to transfer wealth

Family members can pass art in a number of ways. One option is to pass the artwork as an outright gift. Taxes can apply when gifting. The annual gift exclusion is currently set at $15,000 for 2018. This means a married couple could gift $30,000 in artwork during 2018 to almost any individual or entity and still fall within this annual exclusion amount. Using this example, if a family has three children, the couple could give each child a piece valued at $30,000, essentially translating to a tax-free transfer of $90,000 in assets.

Other options include the use of a trust or corporation for ownership of the artwork. Use of an irrevocable trust to house art, for example, can shield the future appreciated value of the works. This can translate to tax savings when used wisely.

A recent piece in Forbes touches on this issue and calls attention to an important, often neglected point to keep in mind when transferring valuable pieces of art. The value of the artwork itself is not the only thing to take into consideration. If the owner truly wishes for the artwork to remain within the family and properly cared for it is wise to include a bequest of additional funds for the maintenance of the artwork.

Art and the IRS

As with any transfer, it is important to take tax considerations into account. The Internal Revenue Service (IRS) will generally require a proper valuation for transfer of works that are estimated to exceed $5,000 in value. In some cases, the IRS can issue a statement of value. Disputes can arise if the authenticity or provenance of the piece is questioned. As such, it is wise to keep records of reviews conducted by museum curators, dealers and auction houses as well as clear documentation of ownership.

Some also choose to take advantage of the tax benefits offered through philanthropic donations of works of art. These donations can result in tax savings that lower the tax burden placed on an estate. This ultimately lowers the estate's tax bill.

These are just two considerations to keep in mind when crafting an estate plan that includes the transfer of valuable artwork. An attorney can help to better ensure all potential issues are addressed.