In 2017, reportedly 80 percent of all fine art collectors interviewed by the accounting consulting firm Deloitte thought art collections to be a valuable category of investment. A serious consideration for any investor interested in retaining and distributing the value of those tangible assets according to plan, a will, estate, or trust document specifies the future heirs of an investor’s artwork, antiques or rare collectibles. A professional estate planner can assist you to draft and execute a plan for passing on beloved and highly valuable treasures.
Estate Tax Law
The Internal Revenue Service (“IRS”) defines “collectibles” as artwork, antiques, rugs, fine jewelry or other metals and gems, stamps and coins, and vintage alcoholic beverages. Under IRC Section 408(m), the IRS allows estate holders to distribute personal property to heirs or to charities. Special tax and estate laws on distribution of artwork and other collectible assets held in an estate differ by state, as mentioned in New York Consolidated Laws, Tax Law – TAX § 1115. Exemptions from sales and use taxes.
The IRS treats estate artwork and collectibles held strictly for investment purposes as a deductible loss. At present, federal tax on long-term capital gains from collectibles is 8 percent higher than the standard 20 percent long-term capital gains tax at 28 percent, unless an estate holder qualifies for 3.8 percent surtax eligibility.
High net worth beneficiaries lose the tax-deductible incentive of an inherited collectible if the item is sold at a loss less than one year from receipt. A licensed estate planning an attorney will advise a client about any market-value depreciation, income or capital gains taxes, or estate tax penalties that will be assigned to collectibles at time of transfer to an estate or its heirs.
Estate Planning Preparation
Valuable art and collectible assets contribute to the net worth of an estate. Read the following eight (8) estate planning recommendations for transfer of fine art and collectibles to your estate or trust:
- Seek more than one appraisal certification of authenticity for any high value artworks or other rare collectible items.
- Maintain bill of sale records, auction or purchase price, appraisal records, damages records, insurance policy coverages, and record of refurbishment or repairs to each collectible item.
- Create a written will, estate, or trust distribution plan to ensure that specific items are passed on to designated heirs at time of death, and to avoid probate proceedings.
- Consider market-value of each item to equalize inheritance value accorded to heirs, and the potential taxes or liquidation costs.
- Living trust holders can take advantage of tax-exempted annual or lifetime gift exclusions, gifting artwork or collectibles to heirs prior to death.
- Estate document should contain instructions for storing and shipping tangible assets, especially if inheriting heirs reside a fair distance.
- Charitable contribution is a tax-deductible option. Donor Advised Funds offer a viable tool for estate gifting of valuable collectibles to a nonprofit charity,
- Notify your estate planning attorney, investment advisor, or CPA of artworks and collectibles with instruction about response to any disagreement about distribution or management of those assets among heirs should such dispute arise.
Estate Planning Attorney
An experienced estate planning lawyer can advise you about tax-free transfer of valuable artwork and rare collectibles to an estate or trust. Ettinger Law Firm is a licensed attorney practice in New York, specializing in estate planning and probate litigation. Contact Ettinger Law Firm for a consultation about an estate law matter.
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